Aaron Ault
Chief Financial Officer at Cardinal Health
Thank you, Jason, and good morning. Before discussing our Q4 success and our raised guidance, I want to highlight that today we are providing revised prior period financials for fiscal year '22 through Q3 fiscal year '24 reflecting slight net increases to non-GAAP EPS. During the preparation of our annual financial statements, management identified a longstanding accounting error in part of our at-Home solutions business related to revenue recognition from third party payers. As a result, we have corrected this item in prior periods and also updated the timing of other previously recognized, immaterial out of period items across the full enterprise. The net impact of these changes increases non-GAAP EPS by the $0.07 in fiscal year '24, $0.06 in fiscal year '23 and $0.01 in fiscal year '22. To be helpful, we've included supplemental schedules in our press release along with further detail in our fiscal year '24 10-K.
Moving to our results, I'm pleased to reinforce that Q4 produced a strong finish to a year in which the Cardinal team made tremendous progress against our financial and strategic priorities. For both Q4 and the year, our EPS results reached historical high points with operating profit growth across pharma, GMPD and other also supported by improvements below the line in the form of lower interest costs, better tax rates and lower share count. We delivered strong gross margin growth and matched it with well controlled SG&A, even in an inflationary environment.
In Q4, revenue increased 12% to $59.9 billion, reflecting revenue growth in the pharmaceutical and specialties solutions segment, the GMPD segment and in all of the businesses making up other. Gross margin grew 5% to $1.9 billion, outpacing consolidated SG&A, which increased only 2% to $1.3 billion in the quarter, reflecting our disciplined cost management. This translated to total company operating earnings of $605 million, up 14% versus last year. Below the line, interest and other improved $6 million versus prior year to $10 million, benefiting from the quarter's strong cash out performance. Our fourth quarter effective tax rate finished at 24.6%, 4.5 percentage points lower than the prior year. Fourth quarter average diluted shares outstanding were $245 million, 4% lower than a year ago due to our previously announced share repurchases. The net result was fourth quarter EPS of $1.84, growth of 29%.
Moving into our segment results beginning with the pharma segment on slide 11, fourth quarter revenue increased 13% to $55.6 billion, driven by brand and specialty pharmaceutical sales growth from existing customers. We continue to see broad based strength in pharmaceutical demand spanning across product categories, brand, specialty, consumer health and generics, and from our largest customers. Excluding GLP-1 sales, the segment's Q4 revenue growth would be 9%. As we've commented previously, GLP-1 sales do not meaningfully contribute to the bottom line.
Segment profit increased 8% to $482 million in the fourth quarter, driven by positive generics program performance. Within our generics program, we continue to see volume growth and consistent market dynamics including strong performance from Red Oak. Pharma segment profit growth in the quarter was 8% despite an approximate $15 million margin headwind related to the unwind of the previously announced large customer transition. This unanticipated impact in the quarter was the primary difference between Pharma's Q4 results and the midpoint of our prior guidance. Recall that we previously observed that the impact of the contract loss would be offset by new customers, specialty networks and cost controls as part of our contingency planning. Consistent with these mitigation plans, the team began implementing cost control measures and started to see offsetting savings.
We also saw strong growth from biopharma solutions in the quarter, including contributions from specialty networks. Turning to the GMPD segment on slide 12, we are quite pleased by the Q4 GMPD results, which confirmed our team's continued progress against the GMPD improvement plan. Fourth quarter revenue grew 2% to $3.1 billion, driven by volume growth from existing customers. We again saw growth in Cardinal brand volumes during the quarter. GMPD delivered Q4 segment profit of $47 million, generally consistent with our expectations and our prior guidance of approximately $65 million for the year before the prior period revisions. The $40 million year-over-year increase in Q4 was driven by an improvement in net inflationary impacts, including our mitigation initiatives, as we achieved our target of offsetting the gross impact of inflation by the end of fiscal year '24.
We continue to be encouraged by the tenacity of the team in driving improved execution and customer satisfaction and service levels while identifying additional opportunities to optimize the business. Finishing with the businesses that aggregate into other as seen on slide 13, fourth quarter revenue increased 15% to $1.2 billion, driven by growth across all three businesses, at-Home solutions, Nuclear and precision health solutions and OptiFreight logistics. Segment profit grew 11% to $111 million, primarily driven by the performance of OptiFreight logistics. The OptiFreight business continues to hit on all cylinders as increasing customer demand for our logistics management services is met with strong execution.
In Nuclear and at-Home solutions, we continue to invest strategically to supercharge growth. All three businesses, as key parts of our growth story, have received and will receive going forward access to capital for expansion of their business models in support of our customers. I will be brief on the full year commentary. Fiscal '24 revenue increased 11% to $227 billion, with growth from all five operating segments. Gross margin increased 8% to $7.4 billion, while SG&A increased a more modest 4% to $5 billion, reflecting our year-long efforts to control costs. Together, this resulted in fiscal '24 total operating earnings growth of 16% to $2.4 billion. All in, it was an excellent year across the business.
Below the line, interest and other decreased 52% to $42 million, driven by increased interest income on cash and equivalents. Our annual effective tax rate finished at 21.7%. Average diluted shares outstanding were $247 million, 6% lower than a year ago due to share repurchases. The net result was fiscal '24 non-GAAP EPS of $7.53, growth of 29%, well above our long-term target of 12% to 14% growth.
Now, before I turn to fiscal '25, let's cover the balance sheet. For fiscal '24, our ending cash balance was $5.1 billion. The cash position includes $200 million earmarked for the November 2024 debt maturity, with an additional $200 million to be paid through the time deposits held in prepaid assets and other on the balance sheet. To get there, we generated robust adjusted free cash flow, nearly $4 billion in fiscal year '24. Recall that at our Investor Day last June, I commented that cash flow remained an area of opportunity for us. Our excellent adjusted free cash flow results in 2024 was almost entirely a result of the team's year-long effort to optimize each element of our working capital, while remaining focused on our service levels. To a much lesser degree, the results reflect balanced preparation for the Q1 contract expiration, which has now occurred in July, largely as we expected. We attribute only $200 million of our fiscal '24 cash flow to beneficial timing related to the large contract unwind. I'll talk about the impact of the contract to unwind on cash flow shortly as part of our guidance.
Also, this year, we strengthened our balance sheet and achieved our targeted leverage ratio, which resulted in three positive outlook updates from the credit rating agencies. We also continued to deploy capital in a shareholder friendly manner, returning more than our baseline commitment of capital returned to shareholders through $750 million of share repurchases and $500 million in dividend payments, and we increased our dividend for the 35th year in a row.
Now let's look forward and discuss our updated fiscal '25 guidance on slide 15. Today we are increasing our fiscal '25 EPS guidance to a new range of $7.55 to $7.70. This is an increase from the preliminary guidance during our Q3 call of at least $7.50. Slide 16 shows our fiscal '25 outlook for pharma. On revenue, we expect a decline between 4% and 6%, reflecting the nearly $40 billion revenue headwind from the large customer contract expiration. Normalizing for the large customer, fiscal '25 revenue growth would be between 15% and 18%. This reflects underlying growth generally consistent with our long-term targeted rate of 10% due to strong overall pharmaceutical demand, as well as significant growth from the onboarding of new customers and existing customer expansions, primarily in the second half of the year.
We are on track to address the segment profit impact of the large contract expiration with this incremental volume, contributions from specialty networks, and additional operational efficiencies. Note that all three of these offsets will have some level of a ramp to them throughout our fiscal '25. We expect consistent market dynamics for our generics program to continue. We also expect increased contributions from brand and specialty products, including biosimilars. We are assuming a modest year-over-year headwind related to the distribution of COVID-19 vaccines. On brand manufacturer price increases, we expect an environment generally consistent with the past several years.
Summing it all up, we anticipate pharma segment profit growth in the range of 1% to 3%, a testament to the strength and resiliency of this business. It is the case that segment profit growth will be more back half weighted than usual. We expect first half segment profit to be slightly lower to flat versus the prior year with profit growth in the back half. Q3 should again be the highest absolute dollar profit quarter for the business.
Turning to GMPD on slide 17, on the top line, we expect growth between 3% and 5%, aided by low single digit utilization growth as well as incremental volume from the onboarding of net new distribution customer wins. On the bottom line, we are reiterating our expectation of approximately $175 million in segment profit for fiscal year '25 on our path to approximately $300 million in segment profit by fiscal year '26 by executing the GMPD improvement plan. The plan is unchanged from what we shared a quarter ago. After successfully offsetting inflation at the end of this year, the annualization of these benefits will be a fiscal year '25 tailwind. The team remains focused on continuing to drive Cardinal brand growth through our five-point plan. In fiscal year '25, we expect Cardinal brand sales growth between 3% and 5%.
Simplification and cost optimization also continue with further opportunities in the pipeline to drive efficiencies and streamline our operations. Recognizing that while GMPD's plan may be simple, that does not make it easy. We once again expect a back half weighted profit year in fiscal '25, just like fiscal '24. The quarterly cadence will be driven by seasonality and the ongoing commercial and operational improvements in the business. Additionally, we expect unfavorable manufacturing cost timing in the first half of the year, which, unlike last year, includes some startup costs and timing associated with expanding production that Cardinal Health owned domestic manufacturing plants to enhance our supply chain resiliency.
Q1 should be the low point of the year due to these factors. Last year's updated Q1 shows $12 million of profit, and this year we expect Q1 to increase to up to $20 million with sequential improvements thereafter.
Turning to other on slide 18. For each of Nuclear, at-Home solutions and OptiFreight, we expect profit to be aided by the continued strength in demand, execution of our growth strategies and benefits from our increased prioritization of these businesses with investments. Collectively, we expect revenue growth in the range of 10% to 12% and segment profit growth of approximately 10%, with all three businesses contributing to these targets. Stepping back, we are pleased to see anticipated profit growth across all of our operating segments in fiscal year '25.
Moving below the line, we expect interest and other in the range of $140 million to $170 million. The large year-over-year increase continues to be driven by lower average cash balances, lower short-term investment rates on our cash and higher rates on our debt resulting from the refinancing of our calendar 2024 maturities. We continue to expect our fiscal year '25 effective tax rate to be in the range of 23% to 24%. With our near-term GNP value creation initiatives, we have increased our fiscal year '25 share repurchase expectations beyond our baseline to $750 million in the year, leading to a share count guidance of approximately 243 million shares.
Finally, we expect fiscal year '25 adjusted free cash flow of approximately $1 billion, reflecting the Q1 negative impacts from the large contract unwind as well as quarter end day of the week timing. While these dynamics will significantly affect our cash flow in Q1, our strong investment grade balance sheet positions us well to manage through these fluctuations and continue making strategic investments in the business, consistent with our disciplined capital allocation framework.
To close, fiscal year '24 was a standout year filled with notable milestones. With adjusted EPS growth at 29% and adjusted free cash flow of nearly $4 billion, the Cardinal team delivered. With six weeks of fiscal '25 behind us, I'm pleased to say that the team is managing adeptly between the leaders we have throughout the organization, our dedicated team working tirelessly to serve our customers and our clear strategy, we are confident that we will deliver once again.
With that, I will turn it back over to Jason.
