Cardinal Health's Q1 2026 Earnings Call: Contradictions in Specialty Growth, Tariff Impacts, and Biosimilars Strategy

Date of Call: October 30, 2025

Financials Results

• Revenue: $64.0B, up 22% year-over-year
• EPS: $2.55 per diluted share, up 36% year-over-year
• Gross Margin: Gross profit grew 22% to $2.3B year-over-year
• Operating Margin: Operating earnings grew 37% year-over-year

Guidance:

• FY26 EPS raised to $9.65–$9.85 (management said this equates to ~17–20% growth; CEO later referenced 16–19%).
• Adjusted free cash flow raised to $3.0–$3.5B.
• Pharma revenue guide increased to 15–17% and Pharma segment profit guide to 16–19% (M&A to add ~8 ppt; Solaris ~3 ppt).
• GMPD: revenue 2–4% and at least $140M segment profit; tariffs expected near high end of $50–$75M and Q2 GMPD may not show YOY profit growth.
• Other: revenue 26–28%; segment profit 29–31%.
• Interest/other ~ $325M (up ~$50M for Solaris financing); CapEx $600–$650M; diluted shares ~238M.

Business Commentary:

• Strong Pharmaceutical and Specialty Solutions Performance:
• Cardinal Health reported a 23% increase in revenue to $59 billion in Q1 for the Pharmaceutical and Specialty Solutions segment, with segment profit up 26% to $667 million.

• The growth was fueled by robust demand across Brand, Specialty, Generics, and Consumer Health categories, with a significant contribution from GLP-1 sales.

• Other Growth Businesses Momentum:

• Revenue in the Other segment increased by 38% to $1.6 billion, with segment profit jumping by 60% to $166 million.

• This was driven by strong demand across all three businesses: at-Home Solutions, Nuclear and Precision Health Solutions, and OptiFreight Logistics.

• Improved Financial Guidance:

• Cardinal Health raised its full-year EPS guidance to a range of $9.65 to $9.85, reflecting a 17% to 20% increase in EPS growth.

• The improved outlook is due to strong Q1 performance, anticipated contributions from the Solaris Health acquisition, and the annualization of prior acquisitions.

• Strategic Investments and Integration:

• The company is advancing its strategic investments, including the expansion of MSO platforms and the expansion of its BioPharma Solutions business, which contributed significantly to Q1 results.
• These investments are part of the company's strategy to capitalize on key secular trends in the healthcare and pharmaceutical industries.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly described a "strong start to fiscal '26" and results that "exceeded our expectations across the board," highlighted "strong double-digit profit growth across each of our 5 operating segments," and announced they are "raising our full year EPS guidance" while generating $1.3B of adjusted free cash flow in Q1.

Q&A:

• Question from Erin Wilson Wright (Morgan Stanley): How should we think about the broader momentum and what's embedded in assumptions; can you unpack M&A contribution and Solaris in the guide?
  Response: Guidance reflects continued strong demand and execution; Solaris contributes ~3 percentage points of Pharma profit and most of the $7B of new customer revenue is realized in H1.

• Question from Elizabeth Anderson (Evercore ISI): Does the guide include Rite Aid volume and how should we think about opportunities from policy/regulatory changes?
  Response: Rite Aid volume pickup is a modest component but not the primary driver; policy changes are viewed as neutral-to-positive for access/utilization and don't materially change the outlook today.

• Question from Michael Cherny (Leerink Partners): How much of the Pharma/Specialty outperformance is controllable (penetration/operations) vs. market strength?
  Response: Outperformance is a mix of favorable utilization and execution; management is focused on controllables—operational execution and customer penetration—to sustain share and financial results.

• Question from George Hill (Deutsche Bank): Are you assuming a deceleration later in the year and can you comment on sustainability/Part B vs Part D dynamics?
  Response: Management is comfortable with current momentum and guidance; cadence reflects customer wins and M&A (ION/GIA annualization, Solaris contribution later) but they declined to provide further segmentation detail.

• Question from Eric Percher (Nephron Research): Can you describe Q1 cadence in Other and ADS integration synergies and pull-through for the year?
  Response: Other segment delivered broad strength; ADS integration is realizing synergies early with most ADS volume moved into Cardinal's network using minimal incremental capacity.

• Question from Allen Lutz (BofA Securities): What Cardinal Health brand products are driving >6% growth and runway for outsized growth?
  Response: Growth is led by clinically differentiated GMPD products—compression, ECG, surgical kitting, syringes—and management will continue to invest in those areas.

• Question from Kevin Caliendo (UBS): What drove same-store generic unit growth—category mix, prescribing changes, spreads, biosimilars?
  Response: Generic performance was volume-driven (higher same-store units) consistent with market dynamics, aided by anticipated LOE-driven generic launches.

• Question from Eric Coldwell (Robert W. Baird): Will recent policy moves spur more biosimilar development and is that in your long-term view?
  Response: Biosimilars are viewed as a long-term tailwind and potentially positive for access/affordability, but specifics and quantification are premature.

• Question from Daniel Grosslight (Citigroup): Are accretion figures inclusive of onboarding distribution for ION/GIA and how is that progressing; when could Solaris distribution come on board?
  Response: ION/GIA distribution onboarding is included in current guidance and progressing; Solaris distribution is not included yet because the transaction hasn't closed.

• Question from Steven Valiquette (Mizuho Securities): Does a competitor's divestiture create opportunity for GMPD?
  Response: Potentially yes—Cardinal is emphasizing service/performance and targeted investments to be the supplier/partner of choice, positioning to win share.

• Question from Jack Slevin (Jefferies): Any color on Pharma spending inside MSOs and trends in drug spend vs other MSO revenue?
  Response: MSO revenue is diversified (drug spend ~1/3); strong growth across priority therapies—autoimmune, urology, oncology—remains the strategic focus.

Contradiction Point 1

Specialty Business Growth and Market Dynamics

It involves differing perspectives on the drivers of specialty business growth and market dynamics, which are crucial for understanding the company's performance and future growth trajectory.

What are the key factors driving Cardinal Health's forward-looking momentum, particularly in Pharma and Specialty Solutions? Are there any intra-quarter surprises contributing to the upside performance? How is M&A contributing to the guidance? - Erin Wilson Wright (Morgan Stanley)

2026Q1: Key trends like demographics, pharmaceutical product innovation, and precision health are positive. - Jason Hollar(CEO & Director)

What's driving brand and specialty sales growth, and is the IRA Part D change affecting this trend? How sustainable is this growth into 2026? - Lisa Gill (JPMorgan)

2025Q3: The growth is broad-based, including generics, branded products, and specialty areas. The recent customer wins are contributing to growth, with GLP-1 sales accounting for about 7% of it. - Jason Hollar(CEO)

Contradiction Point 2

Impact of Tariffs on GMPD Segment

It relates to the impact of tariffs on the GMPD segment, which can have significant financial implications for the company.

Does your outlook include Rite Aid's closure by CVS? How do you view opportunities from policy changes? - Elizabeth Anderson (Evercore ISI)

2026Q1: The majority of the $200 million to $300 million is accounted for through pricing after non-pricing actions. This largely impacts GMPD, while other segments remain tariff-resistant. - Jason Hollar(CEO & Director)

What steps are needed to offset Cardinal Health's brand exposure, and is there an expectation of passing costs through? - Eric Percher (Nephron)

2025Q3: The majority of remaining exposure will be mitigated through pricing, with Cardinal Health responsible for the majority of these costs. National brand is largely a pass-through arrangement. - Jason Hollar(CEO)

Contradiction Point 3

GMPD Improvement Plan and Profitability

It involves differing expectations regarding the GMPD Improvement Plan's impact on profitability, which is crucial for investor projections.

Has growth slowed this year, and can you compare Part B and Part D growth? - George Hill (Deutsche Bank)

2026Q1: The program is progressing well. The expected run rate from the GMPD Improvement Plan has been slightly reduced due to lower than expected realized inventory recovery. - Aaron Alt(CFO)

How do you view GMPD Improvement Plan investments and the opportunities in the back half of the year? - Elizabeth Anderson (Evercore)

2025Q2: Our GMPD Improvement Plan is on track, despite a $15 million adjustment due to WaveMark. We will continue to sequentially improve profitability each quarter. The business is expected to meet long-term guidance, adjusted for the unanticipated items and healthcare costs. - Aaron Alt(CFO)

Contradiction Point 4

Impact of Policy Changes on Biosimilars

It involves the potential impact of policy changes on the biosimilars market, which could significantly affect Cardinal Health's strategy and long-term growth.

Are Washington policy changes impacting the biosimilars market and your long-term strategy? - Eric Coldwell(Robert W. Baird & Co)

2026Q1: Policy changes like biosimilar investment encouragement, can be beneficial but require understanding the details and industry reaction. Biosimilars are already a long-term focus for Cardinal Health. - Jason Hollar(CEO & Director)

Will Blackwell's Q4 revenue be additive, and what is the expected exit rate for gross margins? - Stacy Rasgon(Bernstein Research)

2025Q4: We want to be in alignment with that policy and have the ability to be able to participate. - Jason M. Hollar(CEO)