On Monday, Cardinal Health Inc. experienced a significant drop in share prices after losing a major contract with UnitedHealth Group Inc.’s pharmacy benefits subsidiary, Optum Rx. The company announced that the contract would not be renewed and would expire in June. Despite this loss, Cardinal reaffirmed its fiscal 2024 adjusted earnings forecast of $7.20 to $7.35 per share.
The impact of losing the Optum contract was substantial for Cardinal, as it accounted for 16% of the company’s revenue in fiscal 2023. These sales had a lower profit margin compared to other revenue streams. McKesson Corp., another major drug wholesaler, was awarded the contract that Cardinal lost. Evercore ISI analysts noted that this new contract will start in July and will have an impact of about 45 to 50 cents on Cardinal’s earnings in fiscal 2025.
Following the news of the lost contract, Cardinal’s shares fell as much as 5.2% in New York trading on Monday, marking the largest intraday loss the company had seen in more than two months. Meanwhile, McKesson’s shares saw a brief increase of 1.2% before erasing the gain. Cardinal’s contract with Optum began in fiscal 2016 and has been a significant source of revenue for the company in recent years.
Cardinal declined to provide further comment beyond the initial statement regarding the lost contract, but it is clear that this loss will be felt in the coming years as the company adjusts to changes in its revenue streams
