Aaron Alt
Chief Financial Officer at Cardinal Health
Thanks, Jason, and good morning. Before we begin, let me remind you that our Q2 segment commentary will be according to our former segment structure, Pharma and Medical.
Let's start with total company results for the second quarter. Q2 delivered another strong quarter across the enterprise with EPS of $1.82, growth of 38%, which included operating earnings growth of 20%. We also delivered strong cash flow and ended the quarter with $4.6 billion of cash, even following incremental share repurchase activity in the quarter.
As seen on Slide 4, total company revenue increased 12% to $57.4 billion, reflecting growth in both the Pharma and Medical segments. We drove operating leverage for the enterprise despite incremental investments in the business and higher costs to support sales growth. Gross margin increased 11% to $1.8 billion, driven by both segments, and consolidated SG&A increased 8% to $1.3 billion. With the strong profit growth in both segments, we delivered operating earnings of $562 million, 20% higher than a year-ago.
Moving below the line, interest and other decreased by $26 million to $8 million in income due to increased interest income on cash and equivalents from higher cash balances and higher rates. As we've noted, our debt is largely fixed-rate, resulting in a net benefit from rising interest rates in the near term. Additionally, Q2 Interest and other benefited from nearly $10 million in income from the quarterly revaluation of our company's deferred compensation plan investments, which as a reminder, has a matching offset above the line.
Our second quarter effective tax rate of 21.3% was 1.7 percentage points lower than a year-ago, and better than we anticipated due to positive discrete items in the period. Q2 average diluted shares outstanding were $246 million, 6% lower than a year-ago due to share repurchases in each of the last four quarters. And as I mentioned earlier, the net result for Q2 was EPS of $1.82, reflecting growth of 38%.
Lets turn to the Pharma segment on Slide 5. Second quarter revenue increased 12% to $53.5 billion, driven by brand and Specialty Pharmaceutical sales growth from existing customers. We saw strong Pharmaceutical demand across product categories, brand, specialty consumer health and generics, and from our largest customers. We also continue to see robust demand for GLP-1 medications, which provided a revenue tailwind in the quarter. Segment profit increased 12% to $518 million in the second quarter, driven by positive generics program performance and the higher contribution from brand and specialty products, including distribution of COVID-19 vaccines. Our positive generics program performance continued to reflect volume growth and consistent market dynamics.
With respect to COVID-19 vaccines, we saw the strength in demand from September for the fall immunization season carry into October, before peaking mid months and trending to a much lower run-rate as we exited the second quarter. The Q2 increase in segment profit includes a partial offset from higher costs to support sales growth, driven by increased Pharmaceutical volumes.
Turning to the Medical segment on Slide 6. Second quarter revenue increased 3% to $3.9 billion, which as Jason alluded to, reflects quarterly revenue growth for the Medical segment for the first time in over two years. This increase was driven by growth in both at-Home Solutions and Global Medical Products and Distribution with the GMPD growth primarily related to higher Cardinal Health Brand volumes.
Medical delivered segment profit of $71 million, a $54 million year-over-year increase, driven by an improvement in net inflationary impacts, including our mitigation initiatives. Consistent with the expectations communicated a few weeks ago, segment profit was generally consistent with Q1 despite some nonrecurring adjustments in the quarter. We continue to be encouraged by the underlying performance of the business, which through the first two quarters of the year has tracked consistent with our original plans.
Now turning to the balance sheet. We generated robust adjusted free cash flow of $1 billion in Q2, bringing our year-to-date adjusted free cash flow to $2 billion. And as I noted earlier, ended the quarter with $4.6 billion of cash on hand. We remain focused on doing what we said we would, deploying capital according to our disciplined capital allocation framework. Thus far, through the first-half of fiscal '24, we've continued to invest against our highest priorities, including investing back into the businesses to drive organic growth, with over $200 million in year-to-date capex.
In the first-half, we have returned $1 billion total for shareholders, which includes our quarterly dividend payments, and $750 million in year-to-date share repurchases. These share repurchases are in excess of our committed baseline repurchases of $500 million. In January, we made certain opioid settlement prepayments of $238 million at a pre-negotiated discount, which is expected to result in a GAAP-only gain of approximately $100 million in the third quarter.
Now for our updated fiscal '24 guidance on Slide 8, beginning with the enterprise. With our strong first-half performance and positive outlook, we are again raising our fiscal '24 EPS guidance. Our new range of $7.20 to $7.35 reflects a $0.45 increase at the bottom end and the $0.45 increase at the top end from our Q1 guidance range, and a midpoint which is 26% above our fiscal '23 EPS results. We are encouraged by the operating performance of our businesses and our strong cash flow generation, which is certainly contributing to the improvements below the line.
Interest and other is reduced to a range of $50 million to $65 million, which primarily reflects increased interest income from higher-than-anticipated cash balances. We expect lower average cash balances in the second half of the year, due in part to the seasonal timing of anticipated cash flows. We are evaluating opportunities to refinance our upcoming 2024 debt maturities in the back half of the year. We are lowering the top end of our effective tax rate guidance to a new range of 23% to 24% to reflect the positive discrete items we have seen in the first-half of the year. We also are lowering our shares outlook to approximately 247 [Phonetic] million, which reflects the $250 million accelerated share repurchase program we completed in Q2. No additional share repurchases are assumed in our updated guidance for fiscal year '24.
Now turning to the fiscal '24 outlook for our segments. While we will be transitioning to our new segment structure reporting beginning in Q3, let me start with our former segments as a comparison point for the updated structure. No changes to the outlook for the former Pharma segment. We are reiterating the 10% to 12% revenue growth and 7% to 9% segment profit growth.
For the former Medical segment, the fiscal '24 outlook is updated to approximately $380 million of segment profit to reflect the net impact of Q2 nonrecurring adjustments. Outside of these, our overall operational expectations are consistent with delivering the prior $400 million in segment profit for the year, as well as the corresponding prior expectation of $650 million in segment profit for fiscal year '26.
We have consistently highlighted the back-half weighting of the Medical guidance, driven by progress within GMPD and Cardinal Health Brand volume growth, the cumulative impact of inflation mitigation and some business-specific seasonality. Our expectations there continue. For example, with inflation mitigation, we have strong visibility to overall cost improvements in the second-half of the year, driven by reductions we've observed in your international freight, which as a reminder, reflecting our income statement on a two to three quarter delay. And as we exit January, the mitigation initiatives necessary to achieve our year end target are now largely in place.
Now as seen on Slide 10, let me comment on how this fiscal year '24 guidance translates to our updated segment structure. To go along with the preliminary recast fiscal '23 actuals and long-term targets we provided a few weeks back. Our new structure went into effect on January 1st. So beginning in Q3, we will report results and provide drivers according to the new segment structure, Pharmaceutical and Specialty Solutions and GMPD. And separate from these two segments, Nuclear at-home and OptiFreight aggregated in other. At that time, we also plan to provide a recast of the results for fiscal '22 to '24 on the new segmentation.
Beginning with the Pharmaceutical and Specialty Solutions segment, the guidance ranges are consistent with the former Pharma segment, even excluding our higher-growth Nuclear business, we expect 10% to 12% revenue growth and 7% to 9% segment profit outlook for fiscal '24, and a 4% to 6% segment profit growth CAGR over the long-term.
Turning to GMPD, where we remain encouraged by the improvements in this business. For the execution of the Medical Improvement Plan initiatives, we expect to drive GMPD from an operating loss of approximately $165 million in fiscal '23 to operating income of approximately $65 million in fiscal '24. From the fiscal '23 low point, this $230 million year-over-year improvement will position us roughly halfway towards our fiscal '26 target of approximately $300 million of segment profit.
Finally, we expect the business included in Other, at-Home Solutions, Nuclear Precision Health Solutions and OptiFreight logistics to collectively deliver 6% to 8% segment profit growth in fiscal year '24. The difference between this fiscal '24 growth rate and the long-term CAGR of 8% to 10% for fiscal '24 to '26 reflects the portion of the Q2 nonrecurring adjustments within at-Home Solutions, with the remainder residing in GMPD.
Before I close, a couple of comments on our recently announced acquisition. We've noted that the Specialty category has been our highest priority for potential M&A, and the primary consideration for opportunistic capital deployment as part of our disciplined capital allocation framework. Given our financial flexibility and strong presence in the other 60% of the specialty market in therapeutic areas outside of oncology, we have evaluated a range of potential acquisition candidates to further accelerate our specialty strategy. We are thrilled to reach an agreement for Specialty Networks to become a part of the Cardinal Health family. Jason will elaborate on the strategic aspects of the deal, but we plan to include the expected financial impacts of the transaction in our guidance upon closing, which of course, is subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals. For general modeling purposes, we expect the deal to be accretive 12 months following close.
So to wrap up, tremendous progress in the first-half of the year with exciting value creation opportunities still in front of us. We are confident in our plans and grateful for the efforts of our team, who continue to drive our ongoing initiatives and prioritize the needs of our customers.
With that, I will turn it back over to Jason.
