What happened

Shares of Cardinal Health (CAH 0.29%) fell over 13% last month, according to data provided by S&P Global Market Intelligence, after the global healthcare services and products company reported fiscal third-quarter 2019 operating results. While revenue climbed 5% from the year-ago period, operating income tumbled 21%. Both of the company's business segments -- pharmaceuticals and medical -- reported sharply lower segment profit.

If investors had to narrow down the poor performance to just the most important factor, then it would be continued headwinds facing generic pharmaceuticals. Cardinal Health is not involved in the sweeping litigation brought by attorneys general from 44 different states against generic-drug manufacturers, but rather faces pricing and supply chain issues related to increased competition and deteriorating market dynamics.

A declining chart drawn on a chalkboard.

Image source: Getty Images.

So what

Cardinal Health's fiscal third-quarter 2019 operating results tell the story pretty well. Consider how the most recent numbers stack up against the year-ago performance: 


Fiscal Q3 2019

Fiscal Q3 2018

Change (YOY)

Pharmaceutical revenue

$31.4 billion

$29.7 billion


Medical revenue

$3.87 billion

$3.92 billion


Total revenue

$35.2 billion

$33.6 billion


Pharmaceutical segment profit

$536 million

$596 million


Medical segment profit

$155 million

$199 million


Operating income

$432 million

$546 million


Data source: Press release. YOY = year over year.

The one silver lining for Cardinal Health was the strength of its specialty pharmaceutical products, which allowed its largest business segment to grow revenue and offset persistent weakness from generic-drug products. But Wall Street remains concerned with shrinking margins, which has everything to do with the stock's 45% decline in the last three years.

Now what

Investors might be drawn to Cardinal Health for its healthy 4.6% annual dividend yield, but the headwinds facing the generic portfolio cannot be overlooked. Management said it expects to provide more details on its outlook for the market when fiscal 2019 operating results are announced in August. Analysts and investors are awaiting that update, but the stock's slide doesn't suggest there's much optimism for the business right now.