Aaron Alt
Chief Financial Officer at Cardinal Health
Thanks, Jason, and good morning. I won't bury the lead, Q4 was a strong finish to a year in which, with Jason's guidance, the Cardinal team made significant progress against our strategic initiatives. We delivered fourth quarter EPS of $1.55 and $5.79 for the full year, at the high end of our guidance from Investor Day. For both Q4 and the year, our EPS results reached historical high points. We also delivered stronger than expected cash flow, something I will touch on more later.
Let's start with the Pharma segment on Slide 6. Fourth quarter revenue increased 15% to $49.7 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. Similar to Q3, GLP-1 medications provided a revenue tailwind in the quarter. Segment profit increased 12% to $504 million in the fourth quarter, primarily driven by positive generics program performance. Within our generics program, we saw volume growth and consistent market dynamics, including strong performance from Red Oak. Increased contributions from brand and specialty products, along with Nuclear, were also a positive factor, partially offset by higher investment and operating expenses, including higher cost to support sales growth.
Turning to Medical on Slide 7. Fourth quarter revenue was flat at $3.8 billion, an improvement in trend. We saw a decrease in products and distribution sales related to lower PP&E volumes and pricing, partially offset by inflationary impacts, including our mitigation initiatives. This decrease within products and distribution was offset by growth in at-home solutions. In the fourth quarter, we delivered medical segment profit of $82 million, a nearly $100 million increase from the prior year loss.
The results for the quarter were consistent with our Investor Day commentary, composed of approximately $60 million of more core performance, driven in connection with the Medical Improvement Plan and approximately $20 million of both seasonality and net favorable one-time items. As expected, we saw an improvement in net inflationary impacts, including our mitigation initiatives and the normalization of PP&E margins, which were impacted by unfavorable price cost timing in the prior year. Of note, we achieved our target of exiting fiscal '23 with at least 50% inflation mitigation.
Consistent with the expectations communicated at Investor Day, we were encouraged to see early indicators of an improvement in trend with respect to our Cardinal Health brand product sales. We also saw a positive overall contribution from our growth businesses, including at-Home solutions and OptiFreight, and from our ongoing cost optimization measures. So, with significant profit growth in both segments, we delivered total operating earnings of $560 million, growth of 24%.
Moving below the line, interest and other decreased by $48 million to $16 million due to increased interest income from cash and equivalents and increased income from our Company's deferred compensation plan investments, which, as a reminder, is fully offset above the line in corporate. Our fourth quarter effective tax rate finished at 27%, approximately 2 percentage points higher than the prior year due to certain discrete items. Fourth quarter average diluted shares outstanding were 256 million, 7% lower than a year ago due to share repurchases, including a $500 million accelerated share repurchase program initiated in the quarter as we announced at Investor Day. The net result of all of this was fourth quarter EPS of $1.55, growth of 48%.
Now, transitioning to our consolidated results for the year. We surpassed the $200 billion revenue mark for the first time. Fiscal '23 revenue increased 13% to $205 billion, and gross margin increased 5% to $6.9 billion, both driven by the Pharma segment. Total company SG&A increased 6% to $4.8 billion, primarily reflecting inflationary supply chain costs and higher investment in operating expenses such as higher costs to support sales growth, which were partially offset by our comprehensive enterprise-wide cost savings measures.
Operating earnings increased 3% to $2.1 billion. Interest and other decreased 46% to $89 million, primarily driven 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 in the near term. Our annual effective tax rate finished at 23%. The net result was, for fiscal '23 EPS $5.79, growth of 14%.
As for the segment's full year results, beginning with Pharma on Slide 10. Pharma segment profit increased 13% to $2 billion, driven by positive generics program performance and a higher contribution from brand and specialty products, partially offset by inflationary supply chain costs. Fiscal '23 year-over-year growth also included a modest benefit from branded manufacturer price increases, which we are assuming will not repeat in fiscal '24, as well as a favorable prior year comparison related to higher opioid-related legal costs and costs for technology enhancements in fiscal '22.
Moving to Medical on Slide 11. Segment profit decreased 49% to $111 million, primarily due to lower products and distribution volumes and unfavorable sales mix and net inflationary impacts, including mitigation initiatives. This decline was partially offset by normalization of PP&E margins.
Now before I turn to fiscal '24, let's cover the balance sheet. In Fiscal '23, we generated robust adjusted free cash flow of $2.8 billion, with particularly strong cash flow toward the end of the year. We ended the year with $4 billion of cash-on-hand. At our Investor Day, we highlighted that cash flow optimization was an area of go-forward focus for our teams, and the Cardinal team delivered across our businesses. This effort will continue in fiscal '24, notwithstanding that it is a tougher calendar from an inflow-outflow days of week perspective. We remain focused on deploying capital in a balanced, disciplined and shareholder-friendly manner.
In fiscal '23, we invested approximately $480 million of capex back into the business to drive future growth, paid down $550 million in debt to reduce leverage, and maintain our strong investment-grade ratings. Returned over $2.5 billion to shareholders, including through the dividend that our Board increased in May for the 34th year in a row and $2 billion of share repurchases.
Now for our updated fiscal '24 guidance on Slide 13. Today, we are raising our fiscal '24 EPS guidance to a range of $6.50 to $6.75. This increase reflects the strong finish to fiscal '23, particularly within Pharma, where we are now entering the year at a higher jump-off point. We also are tightening our shares range to 250 million to 253 million, which reflects the recent share repurchases as well as our continued expectation of $500 million in base share repurchases over the course of fiscal '24. As you will calculate, the midpoint of our newly raised fiscal '24 EPS guidance is 15% above our fiscal '23 EPS results.
There are no changes to the other corporate guidance assumptions provided at Investor Day. Interest and other between $110 million to $130 million, and effective tax rate in the range of 23% to 25%, and adjusted free cash flow of approximately $2 billion in fiscal '24. Our segment outlooks for fiscal '24 are also unchanged, with one exception, a higher revenue range for Pharma driven by the continued acceleration of GLP-1s, which as a branded product category, do not meaningfully contribute to segment profit.
Slide 14 shows our fiscal '24 outlook for Pharma, our build and grow business. We expect revenue growth in the range of 10% to 12%, and segment profit growth in the range of 4% to 6%, which is now on a larger fiscal '23 reference point due to our strong finish to the year. We are reiterating our key assumptions provided at Investor Day. We expect growth from our generics program with volume growth and consistent market dynamics, and positive operational execution against our organic specialty efforts. We are not assuming outsized benefits from branded inflation in contrast to some of the benefits that we did see in fiscal '23.
On the Pharma fiscal '24 cadence, we expect the year to follow typical seasonality patterns. As usual, we see our fiscal Q3 being the largest segment profit dollar quarter due to the usual timing of branded manufacturer price increases.
Turning to Medical. I want to recognize the progress that the Medical team made during fiscal '23, particularly in Q4, and also acknowledge that we still have blocking and tackling to do against the turnaround to both drive demand and improve our cost. For the full year, we are reiterating our assumptions of revenue growth of approximately 3% and segment profit of approximately $400 million for the year while providing some additional color. Like fiscal '23, we anticipate segment profit to be significantly back half-weighted. We expect Q1 to be generally consistent with the core performance from Q4, with quarterly sequential improvements thereafter driven by our Medical Improvement Plan initiatives.
There are a couple of factors for why Q1 is the low point in the year. First, keep in mind that Q1 is the seasonal low point for our global medical products and distribution business, due to the timing of volume and cost recognition. Second, while we continue to expect to exit fiscal '24 offsetting the impact of gross inflation, those improvements are expected to grow over time, making the impact greater over the course of the year. And finally, we continue to plan for slight Cardinal Health brand volume growth that will largely hit in the second half of the fiscal year.
Though in summary, for Medical, for fiscal year '24, continued work in front of us with each quarter improving from our Q1 launching point to get us to the approximately $400 million guidance for the year. Stepping back, we are pleased to see growth across our businesses continuing in fiscal '24. Consistent with our messaging from Investor Day, we are targeting a 12% to 14% EPS growth CAGR for fiscal '24 to '26, now from the higher fiscal '23 baseline of $5.79.
Now, regarding our intended deployment of cash, which is consistent with our disciplined capital allocation framework as seen on Slide 18, after investing approximately $500 million back into the business to drive organic growth, making approximately $500 million of litigation payments, including our third payment under the National Opioid Settlement back in July and our $1 billion baseline return of capital, we expect to have strong flexibility as we assess further investments in the business, M&A and the possibility of incremental return of capital to shareholders.
I want to reiterate that as we shared at Investor Day, neither our fiscal '24 guidance nor our long-term targets reflect potential opportunistic deployment of capital, including M&A, which is difficult to predict in timing or magnitude or additional share repurchases beyond our $500 million of baseline repurchases each year. We will continue to evaluate both of these levers opportunistically to drive long-term value.
To close, the Cardinal team has a lot to be proud of with respect to their accomplishments in fiscal '23. Jason and I are pleased with the progress our teams have made. We are confident in the plans we have in place. And we are excited for our team to realize the significant value-creation opportunities still in front of Cardinal Health.
With that, I will turn it back over to Jason.
