Interim Chief Financial Officer at Cardinal Health
Thank you, Jason, and good morning, everyone.
I'll begin today with our consolidated second quarter results. Total company revenue increased 13% and gross margin increased 3%, both driven by the Pharma segment. Consolidated SG&A increased 4%, primarily reflecting inflationary supply chain costs. Benefits from our enterprise-wide cost savings initiatives offset some of this increase.
Operating earnings of $467 million were in line with the second quarter of last year, this reflects growth in Pharma segment profit offset by the decline in Medical segment profit, which was anticipated. Moving below the line, interest and others decreased nearly 30% to $18 million driven primarily by increased interest income from cash and equivalents. As a reminder, our debt is largely fixed rate, resulting in a net benefit from rising interest rates.
Our second quarter effective tax rate finished at 23%, approximately 3.5 percentage points higher than prior year, primarily due to net positive discrete items in the prior year period. Diluted weighted average shares were 263 million, 6% lower than a year ago due to share repurchases. In the second quarter, we completed our $1 billion accelerated share repurchase program and initiated a new $250 million program, resulting in a total of $1.25 billion deployed year-to-date. We continue to expect USD1.5 billion to USD2 billion in share repurchases in fiscal '23, which reflects our continued focus on maximizing shareholder value. The net result for the quarter was earnings per share growth of 4% to $1.32.
Now turning to the balance sheet. We generated second quarter adjusted free cash flow of $439 million, bringing year-to-date adjusted free cash flow to $781 million. We ended the period with a cash position of $3.7 billion with no outstanding borrowings on our credit facility. As a reminder, we continue to expect to pay down the $550 million of March 2023 notes at maturity with cash on hand.
Now I will cover our segment performance, beginning with Pharma on Slide 5. Second quarter revenue increased 15% to $48 billion, driven by brand and Specialty Pharmaceutical sales growth from existing and net new customers. Pharma segment profit increased 9% to $464 million. This was driven by a higher contribution from Branded Specialty Products and Generics program performance, partially offset by inflationary supply chain costs.
During the quarter, we saw strong overall pharmaceutical demand, including from our largest customers, reflecting their strength in the market. To a lesser extent, we also saw year-over-year contributions from the net new customers that we've previously mentioned and a more robust seasonality with cough, cold and flu products as others have noted.
Regarding our Generics program, we are pleased with the solid execution and consistent market dynamics we continue to see. This includes strong performance from Red Oak Sourcing, not only controlling costs, but also in maximizing service delivery for our customers. Within our supply chain, we continue to effectively manage through the industry-wide inflationary costs being in the areas of transportation and labor. In the second quarter, these inflationary impacts were generally consistent with our expectations. Similar to last quarter, this headwind was offset by year-over-year tailwinds from our completed ERP technology enhancements and lower opioid-related legal costs.
Okay. Turning to Medical on Slide 6. Second quarter revenue decreased 7% to $3.8 billion, driven by lower products and distribution sales, including PPE pricing and volumes. Continued strong growth in our At-Home Solutions business partially offset this decline. Medical segment profit finished in line with our prior commentary, decreasing 66% to $17 million. This was primarily due to lower products and distribution volumes and net inflationary impact, partially offset by an improvement in PPE margin. During the quarter, the net impact from inflation was in line with our expectations, and we achieved inflation mitigation of over 30%. This sequential improvement from the first quarter was driven by the continued acceleration of our mitigation efforts, including the implementation of additional product pricing actions in the quarter.
On our last two earnings calls, we have discussed overall volume softness in our Products and Distribution business. In the second quarter, we saw generally consistent overall volumes on a sequential basis, including our Cardinal Health brand products. With respect to PPE, we did see some slight improvement in volumes on a sequential basis. Additionally, we made significant progress in selling through our higher cost inventory on our balance sheet leading to normalized PPE margins in the quarter.
Now for our updated fiscal '23 outlook beginning on Slide 8. We are raising our EPS guidance by $0.15 at the lower end and $0.10 at the higher end to a new range of USD5.20 to USD5.50, which represents 6% year-over-year growth at the midpoint. This update reflects improved outlooks for the Pharmaceutical segment and for interest and other. We now expect interest and other in the range of USD115 million to USD130 million with the improvement primarily driven by the increased interest income on cash and equivalents. Our expectations for the remaining items listed on Slide 8 remain unchanged.
Turning to Slide 9 in the Pharmaceutical segment. We are raising our outlook for revenue to a new range of 13% to 15% growth and for segment profit to a new range of 4% to 6.5% growth, both of which primarily reflect our strong first half performance. As we look to the second half in Pharma, we anticipate the year-over-year profit growth to be fairly balanced between the third and fourth quarters.
Turning to Medical. We continue to expect a revenue decline of 3% to 6% and segment profit ranging from flat to a decline of 20%. With respect to inflation and our mitigation actions, we continue to expect a net impact of approximately $300 million in fiscal '23 or a minimal year-over-year impact. On the cost side, while still at elevated levels, we've seen a general stabilization across most areas along with improvement in international freight. As a reminder, these product costs are capitalized into inventory and in the current environment of elongated supply chain reflected in our P&L results on an approximate two quarter delay. Importantly, we continue to expect to exit the year with a run rate of at least 50% inflation mitigation.
And finally, no changes to the expected cadence of Medical segment profit. We continue to expect segment profit to improve sequentially and be particularly weighted toward the fourth quarter. This sequencing primarily reflects our assumptions around the net impact of inflation, and to a lesser extent, a gradual improvement in overall volumes and the continued implementation of our cost savings measures.
For the enterprise, a key factor continues to be the overall utilization and demand environment. In Pharma, we expect continued strength in overall pharmaceutical demand in the second half, albeit at a more moderate rate than we've seen to date. In Medical, we expect a gradual improvement in overall volume, including with Cardinal Health Brand. Therefore, if the trends from the first half of the year continue, we would anticipate segment profit more towards the upper end of our range in the Pharma segment and more towards the lower end of our range in the Medical segment.
With that, I'll now turn it over to Jason.