For 12 months, shares of Cardinal Health (NYSE: CAH) have steadily declined from their 52-week high of $73. After reporting fiscal third-quarter results yesterday, the price popped 6% as investors hoped the company was beginning to put some troubles behind it.

Results were affected by slower overall growth in pharmaceuticals as well as less favorable terms on renegotiated contracts. Revenue advanced 5% to $22.9 billion from the same period a year ago. Earnings per share improved more dramatically, reaching $1.02 per share from a loss of $0.01, although the 2007 results included a special charge to establish a reserve for securities litigation.

Cardinal guided earnings estimates for the full year to the midpoint of a $3.75 to $3.85 range. While it previously looked for some gains, the company now thinks the second half of the year will be in line with the first half. In a change from prior policy, the company said it would delay giving guidance on its 2009 outlook until it reports fourth-quarter earnings in August. This should not be a significant issue, because the company has some matters to resolve before then anyway.

Late last year, the Drug Enforcement Administration suspended Cardinal's licenses to distribute controlled substances at several of its distribution facilities. The company's procedures for preventing the illegal diversion of drugs were found lacking, and the company is working with the DEA to improve these measures and get its licenses reinstated. In the meantime, the problem is costing the company some independent retail business.

This is just one of the items Cardinal is facing in the next year. Additionally, a number of brand-name drugs will begin coming off patent in the near future. This will benefit Cardinal because sales in generics, which carry better profit margins, should surge. Progress on the remaining $1.3 billion worth of shares still authorized to be repurchased could also help drive some EPS gains.

Cardinal Health's management is in the process of significant organizational changes and is reassessing many of its businesses. The company hopes the improvements in operations, or perhaps in its business portfolio, will result in market penetration against competitors like McKesson (NYSE: MCK) and AmerisourceBergen (NYSE: ABC). Even so, the climb back is likely to be as long and slow as the descent.

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