Dublin, Ohio. -- Cardinal Health, Inc., a provider of products and services supporting the health care industry, announced details of a previously disclosed three- year restructuring plan expected to improve annual operating earnings by $500 million. The company also announced that its board of directors has authorized the purchase up to $500 million of its common shares as management deems appropriate.
"We are bringing the company together by integrating externally to align our businesses for customers and internally to become even more efficient," says Robert D. Walter, Chairman and Chief Executive Officer of Cardinal Health. "Both actions -- integrating externally and integrating internally -- will help us deliver even more value to customers and improve returns to shareholders."
The restructuring supports "One Cardinal Health," a long-term program launched by the company to increase the value it provides customers through better integration of existing businesses and improved efficiency from a more disciplined approach to procurement and resource allocation.
The restructuring will be implemented in two phases over a three-year period.
Phase one of restructuring plan
The cost to execute the first phase of restructuring is estimated to be $300 million to $350 million, for asset impairment, employee severance and other costs. Cost savings and profit improvements from this phase are expected to add $125 million to operating earnings in fiscal 2005 and reach an annualized amount of $200 million for fiscal 2006.
The company expects to reduce its 58,000 global workforce by 4,200 during this phase, primarily through business consolidations and process improvements, resulting in the closing of approximately 25 facilities worldwide. More than 100 profit-improvement actions underway include rationalizing and discontinuing overlapping or underperforming product lines and improving product pricing.
"Through the 'One Cardinal Health' program we are focused on building lasting discipline into our operations, making the company more agile and driving organic growth well into the future," says George L. Fotiades, President and Chief Operating Officer of Cardinal Health.
Phase two of restructuring plan
The second phase of the restructuring will focus on longer term integration to drive top line growth and create greater productivity, including:
- Company-wide, world-class shared services for administrative functions such as finance, human resources and information technology;
- Strategic sourcing to better leverage Cardinal Health's global scale and purchasing power;
- An integrated go-to-market strategy for the company's hospital and pharmaceutical manufacturer customers; and
- Efficiency and quality improvement plans across Cardinal Health's manufacturing and logistics operations.
Through specific projects already identified, the company expects the financial benefit of phase two to be $250 million to $350 million in annual operating earnings improvements. The cost to implement phase two has not been finalized and will be announced at a future date following approval by the board of directors.