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Cardinal not to renew distribution pact with Walgreens
March 19th, 2013
DUBLIN, Ohio – Cardinal Health Inc. announced that it won't renew its pharmaceutical distribution contract with Walgreen Co. when it lapses this summer.
The pharmaceutical distributor said Tuesday that the nonrenewal of the contract with Walgreens, which expires in August, won't negatively impact earnings for the current 2013 fiscal year because the existing agreement with the drug chain remains in place throughout fiscal 2013.
Cardinal Health announced the upcoming expiration of the contract the same day that Walgreens and joint venture partner Alliance Boots unveiled a far-ranging partnership with drug wholesaler AmerisourceBergen.
"Although we are not yet ready to provide fiscal 2014 earnings guidance, our portfolio has considerable balance, and we have prepared strategies to mitigate the impact of a Walgreens nonrenewal," Cardinal Health chairman and chief executive officer George Barrett said in a statement. "Based on this, we will target a 2014 non-GAAP diluted earnings per share from continuing operations to be at least similar to the fiscal year 2013 guidance range of $3.42 to $3.50 we provided in our fiscal 2013 second quarter earnings release. We intend to provide more color on fiscal 2014 during our fiscal 2013 third and fourth quarter earnings calls."
Cardinal said that Walgreens is one of its two largest customers. The distributor reported that sales to the drug chain generated about 21% of consolidated revenue for fiscal 2012 and that, during that period, 60% of revenue from Walgreens was bulk sales, which yield lower profit.
Cardinal added that after the expiration of Walgreens contract, the distributor expects a significant net working capital decrease based on reduced inventory and accounts
receivable, partially offset by reduced accounts payable. And based on that working capital decrease and other factors, the expiration of the Walgreens contract will result in a meaningful net, after-tax benefit to cash flow from operating activities in fiscal 2014, Cardinal said.