Cardinal Health to Cut 600 Jobs

Cardinal Health Inc. will formalize its operations into two segments – health care supply-chain services and clinical and medical products – and in doing so cut about 600 jobs, or about 1.5% of the work force.

The company has also disclosed a review of several operations, including its outsourced hospital pharmacy management services, which could lead to their sale.

Cardinal Health had already segmented its operations broadly into two units, with two segments in each of them. But the announcement earlier this week “(formalizes) the organization we began to put in place 18 months ago and will make us a stronger company,” said Chairman and Chief Executive R. Kerry Clark . He added the move will “sharpen our focus on two distinct, large and growing segments of the health care industry.”

Cardinal’s pharmaceutical and medical product distribution centers and nuclear pharmacies will make up the supply-chain segment, which has annual revenue of more than $80 billion. The company’s products for infusion, medication dispensing, respiratory care and infection prevention will be in the other segment. It had annual revenue of about $5 billion and will serve hospitals and other primary care facilities.

The job cuts at the more than 40,000-employee company will result in a $63 million restructuring charge, most of which it expects to recognize in the fiscal year that began July 1. Nearly a quarter of the jobs to be cut are unfilled.

As part of the restructuring, Cardinal Health will also separately report results for a group of other businesses that include outsourced hospital pharmacy management services, orthopedic implants and instruments, and enteral devices and airway management products. The company said while they “continue to add value to Cardinal Health,” it will review the operations during the next year “to evaluate their fit in the existing segment structure.”

In addition, the company still expects earnings for the just-concluded fiscal year – excluding items – of $3.75 to $3.85 a share. Cardinal Health will announce its fourth-quarter results Aug. 7.

The reorganization comes two months after the company noted fiscal third- quarter weakness in its pharmaceuticals segment. At the time, Cardinal Health saw revenue and earnings increase at three out of four of its segments. But by far the biggest unit is drugs and while revenue rose 3.4%, profits fell 21% on lower margins. Cardinal said the segment was hurt by “customer disruption” and ” slower overall market growth.”

The pharmaceuticals segment has been hurting amid a comparatively tougher environment for its generic business, repricing of large contracts, increased surveillance costs at federally regulated facilities and some unfavorable pricing in the radiopharmaceutical market. Amid the turmoil, Cardinal in March replaced the unit’s head with Michael C. Kaufmann , whom the company credited for the turnaround of its medical supply-chain business.

SOURCE: Dow Jones Newswires