Cardinal Health Plunges Most in 14 Years on Tax-Rate Surprise

(Bloomberg) -- Cardinal Health Inc. plummeted the most in nearly 14 years after the drug and medical-supply distributor said earnings for the rest of the year would be worse than expected.

Shares of competitors McKesson Corp. and AmerisourceBergen Corp. also dropped on concern Cardinal Health's woes would spread to other drug distributors.

“The rally in the distributors didn't last very long,” Evercore ISI's Ross Muken wrote in a note to investors Thursday. “There isn't really a silver lining here either, unfortunately.”

Cardinal Health was hurt by a tax rate of 37.5 percent in the most recent quarter at a time when U.S. companies are starting to reap the benefits of the Republican tax overhaul signed by President Donald Trump. The rate was seven percentage points higher than forecast, Jorge Gomez, Cardinal Health's chief financial officer, said during a conference call with analysts. He said he expects to see a decline in the tax rate in coming months.

The Dublin, Ohio-based company cut full-year profit guidance to a range of $4.85 to $4.95 a share after earlier forecasting earnings between $5.25 and $5.50 a share, according to a statement Thursday. Further pressure came from the loss of a contract with PharMerica and lower generic drug prices, the company said.

“We recognize that today's results did not meet your expectations or ours,” Chief Executive Officer Mike Kaufmann said during the call. Next year “will be more challenging than previously expected,” Kaufmann added.

Cardinal Health shares plunged as much as 19 percent to $52.49 in New York, the biggest intraday drop since July 2004. McKesson fell as much as 5.8 percent to $145.63, while AmerisourceBergen slid as much as 5.9 percent to $86.78.

“Tax rate drove essentially all of the miss” for Cardinal, said Eric Coldwell, an analyst at Robert W. Baird & Co., in a note to clients.

The company overall posted revenue of $33.6 billion in its third quarter, in line with analysts' estimates of $33.5 billion. Adjusted earnings missed expectations, coming in at $1.39 a share.

To contact the reporter on this story: Emma Ockerman in New York at eockerman@bloomberg.net.

To contact the editors responsible for this story: Drew Armstrong at darmstrong17@bloomberg.net, Mark Schoifet, Timothy Annett

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