Cardinal Health (NYSE:CAH)
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Cardinal Health Inc. (CAH) expects business investments and other headwinds to hit earnings in its core business in fiscal 2010, with the drug distributor regaining momentum starting the following year, executives said at the drug distributor's investor day Tuesday.

Earnings for the "new" Cardinal Health - the company as it will be after the upcoming spinoff of its CareFusion clinical and medical products business - will be down some 15% from a FY09 base of $2.20 a share to $2.25 a share, on a pro-forma non-GAAP basis, executives said. Cardinal's fiscal 2010 starts July 1 and the company expects to provide more specific guidance in August.

Cardinal shares recently traded down about 11%, or $4.07, to $32.49.

JPMorgan analyst Lisa Gill said she believes Cardinal management was being conservative in its guidance on the distribution segment and that the drop in shares appears to be an overreaction. She also said the FY09 year-to-date combined pro forma EPS figures that the company provided for Cardinal and CareFusion are lower than investor expectations.

Operating earnings per share at new Cardinal Health should grow by a high- single-digit percentage rate after fiscal 2010 as pressures subside, even though the company expects $100 million overall in negative synergies from the spinoff, to be shared between the two entities, Cardinal executives said during the webcast event. Those pressures include continued business investments to strengthen the business's "core," generic-launch cycles and effects of the economy.

Cardinal, in its fiscal 2010 outlook, also took into consideration a contract renewal with its largest customer, CVS Caremark Corp (CVS). George Barrett, who will be Chairman and CEO of Cardinal Health after the spinoff, told investors the company's discussions with CVS Caremark are ongoing and positive.

Supply contracts that Cardinal and rival wholesaler McKesson Corp. (MCK) have with CVS Caremark - the pharmacy giant formed from the 2007 merger of a drug-store chain and a pharmacy benefits manager - are scheduled to expire this year, and Wall Street anticipates terms of the new pacts will be less favorable to the wholesalers.

Cardinal Health aims to complete the spinoff this summer, and Cardinal and CareFusion will start to function as separate businesses on July 1 in anticipation of the transaction. Cardinal's fiscal 2010 forecast assumes the spinoff happens close to the start of the fiscal year.

Executives said they aim to reposition and streamline Cardinal's business portfolio and announced plans to divest two non-core business, a U.K. pharmaceutical products business, Martindale, and its SpecialtyScripts pharmacy; the company said it will remain committed to specialty distribution. They also plan to reposition the Medicine Shoppe International retail pharmacy franchise business.

Cardinal plans to expand its private-label business and explore growth opportunities in clinically oriented products and services, "information-enabled" strategies and targeted international expansion, company executives said.

Cardinal on Tuesday also increased its quarterly dividend by 25%, to 70 cents a share on an annualized basis.

-By Dinah Wisenberg Brin, Dow Jones Newswires; 215-656-8285; dinah.brin@dowjones.com