Cardinal Health Cuts Forecast

Cardinal Health Inc.'s second-quarter net income fell 56%, reflecting a year-earlier gain from selling its pharmaceutical services and technologies unit.

The company also cut its fiscal-year earnings forecast due in part to legal problems the company's pharmaceutical segment incurred with the Drug Enforcement Administration.
The medical supply and pharmaceutical provider reported net income of $324.7 million, or 89 cents a share, for the quarter ended Dec. 31, versus $739.3 million, or $1.80 a share, a year earlier.

Year-earlier results included $1.03 a share from the divestiture gain. Revenue rose 6.9% to $23.28 billion. The mean estimates of analysts polled by Thomson Financial were for earnings of 87 cents a share on revenue of $22.8 billion.

"Within our supply chain pharmaceutical segment, we have revised our forecast to account for the impact of anti-diversion measures for controlled substances, changes in our expectations for branded price increases and the generics market, and the effect of contract repricings," said Chairman and Chief Executive R. Kerry Clark.

Cardinal Health cut its fiscal 2008 guidance for earnings from continuing operations to $3.75 to $3.85 a share from $3.95 to $4.15.

The health-care company has come under fire from the DEA for the lax oversight of a controlled substance.

In the past two months, the DEA has suspended the licenses of three of Cardinal's 25 pharmaceutical-distribution centers to distribute controlled substances. The agency cited as its reason Cardinal's failure to provide adequate safeguards against illegal subscriptions for the narcotic pain reliever hydrocone, more commonly known as Vicodin. Mr. Clark said the impact of these issues "may cost more than $30 million dollars" for the fiscal year.

Profit margins fell markedly, with pharmaceutical business hurt by the timing of branded price increases, conditions in the market for generic pharmaceuticals and the repricing of several large contracts.

Shares closed Monday at $55.86. There was no premarket activity.

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