C-Suite Transitions – Multiple Leadership Changes At Cardinal Health

If you have ever looked at the large drug distributors as potential investments, McKesson (MCK), AmerisourceBergen (ABC) and Cardinal Health (CAH), you were probably struck by the fact that these companies have small single digit gross margins and net margins are even tinier, usually under 1%. What these companies lack in margins, they often make up in volume as they generate a lot of revenue from their numerous divisions. For example, McKesson’s revenue in fiscal 2022 was $264 billion and that translated into net income of $1.11 billion with a net margin of just 0.42%.

The low margins, volatility of their bottom line results and complicated business models with dozens of business divisions has kept me away from the drug distributors. However Berkshire Hathaway not only started a position in McKesson in Q1 2022 but increased their position by 9% last quarter according to a 13-F filing earlier this week. Another well known investor that got recently involved in drug distributors is Elliott Management, which has a large stake in Cardinal Health (CAH) and is agitating for change.

In our first edition of C-Suite Transitions published last week, we mentioned that a company’s leadership team has a huge influence on the company’s trajectory. While going through the list of C-Suite Transitions from last week, we came across one such company that had multiple leadership transitions in a matter of days.

Founded in 1971 and headquartered in Dublin, Ohio, Cardinal Health (CAH) is a multinational health care company that provides integrated healthcare services and products internationally. The company distributes pharmaceuticals and medical products, and manufactures medical and laboratory products, including gloves, surgical apparel, and fluid management products. In addition, the company provides performance and data solutions for healthcare facilities and operates one of the largest networks of radiopharmacies in the U.S.

In 2019, Cardinal was named in a lawsuit in the opioid crisis in the United States along with several other drug distributors. On May 3, 2022, AmerisourceBergen (ABC), Cardinal Health (CAH) and McKesson (MCK) reached an agreement with the Washington Attorney General, under which they will pay up to $518 million to the State of Washington and its participating subdivisions to resolve opioid-related claims.

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