(Reuters) – Cardinal Health Inc’s (CAH.N) quarterly profit missed analysts’ expectations as inventory and cost issues hurt its Cordis medical device unit, and the U.S. drug distributor said it saw prices of generic drugs fall more than expected.
The company’s shares fell 18.8 percent to touch a more than 4-and-a-half year low of $52.93, and Cardinal’s commentary on generic drug prices dragged down rivals McKesson Corp (MCK.N) and AmerisourceBergen Corp (ABC.N).
“We recognize that today’s results did not meet your expectations or ours,” Chief Executive Officer Michael Kaufmann said on a conference call.
The company highlighted ongoing operational difficulties regarding inventory at its Cordis business, which it bought for $1.9 billion in 2015 from Johnson & Johnson (JNJ.N) to expand its medical device offerings and “build an ex-U.S. infrastructure”.
“Granted, building of infrastructure has been more expensive than we thought, it hasn’t gone as well as we thought,” Kaufmann said.
The company said it took a large inventory write-off in the third quarter, as it struggled to sell its medical devices before their expiration dates. The Cordis business includes catheters and stents and other equipment used in cardiology and endovascular procedures.
Cardinal Health said on the conference call it expects Cordis will be on “a path to profitable growth” by the end of 2019.
Cardinal also said that a fall in generic drug prices moderated sequentially and year-over-year, but not to the extent it had previously estimated.
Analysts have noted that even though stubbornly low, generic drug prices continue to pose a headwind to drug distributors, the rate at which the prices of generic drugs are falling seems to be stabilizing.
Contributions from the company’s Red Oak joint venture with CVS Health Corp (CVS.N) were not enough to counter the low prices, Cardinal said.
Segment profit at the company’s pharmaceutical division, which distributes generic drugs, fell 3 percent to $596 million. However, sales climbed 5 percent to $29.7 billion, surpassing consensus estimates.
Excluding items, Cardinal earned $1.39 per share. Analysts were expecting earnings of $1.51 per share, according to Thomson Reuters I/B/E/S.
The company cut its fiscal 2018 adjusted earnings forecast to $4.85-$4.95 per share from $5.25-$5.50 per share, reflecting a negative tax rate and Cordis’s performance.
Net earnings attributable to the company fell 33 percent to $255 million, or $0.81 per share, in the quarter.
Revenue rose 5.7 percent to $33.63 billion.
Reporting by Manas Mishra and Anuron Kumar Mitra in Bengaluru; Editing by Amrutha Gayathri and Shounak Dasgupta
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