Good day and welcome to the Cardinal Health Inc. Second Quarter Fiscal Year 2019 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to your host Lisa Capodici. Please go ahead.

Thank you, Bryce. Good morning and welcome to Cardinal Health's second quarter fiscal 2019 earnings call. I am joined today by our CEO, Mike Kaufmann; and Chief Financial Officer, Jorge Gomez. During the call we will provide details on our second quarter results, full year outlook and an update on our strategic initiatives. You can find today's press release and presentation on the IR section of our website at ir.cardinalhealth.com. During the call, we will be making forward-looking statements. The matters addressed in the statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to our SEC filings and the forward-looking statement slide at the beginning of our presentation for a description of these risks and uncertainties. During the discussion today, our comments will be on a non-GAAP basis unless they are specifically called out as GAAP. Our GAAP to non-GAAP reconciliations for all relevant periods can be found in the schedules attached to our press release. In addition during the call we will provide an update to our fiscal 2019 outlook on a non-GAAP basis. We do not provide guidance on a GAAP basis due to the difficulty in predicting items that we exclude from our non-GAAP earnings per share and non-GAAP effective tax rate. During the Q&A portion of today's call, we ask that you limit your questions to one with one follow-up, so that we may give everyone in the queue a chance to ask a question. As always, the IR team will be available after this call, so feel free to reach out to us with any additional questions. And with that I will turn the call over to Mike.

Thanks, Lisa, and good morning, everyone. I'm glad you could join us. Let me begin with some comments on our second quarter of fiscal 2019 and then I'll provide a brief update on the progress we're making on our strategic initiatives to drive future growth. With the first half under our belt, I'm very pleased that we're on track with executing our plan. Overall the second quarter came in ahead of our expectations led by the pharma segment. EPS for the quarter was $1.29 and revenue up $37.7 billion was up 7%. Operating earnings were $637 million and operating cash flow was $372 million. Based on the year-to-date performance we're raising our guidance range for non-GAAP EPS for the full year to $4.97 to $5.17 from our previous range of $4.90 to $5.15. Jorge will walk you through the details and our current assumption. Our confidence in raising our guidance for fiscal 2019 is based on the tangible results we're beginning to see from the hard work being performed across the enterprise, as we execute on our top priorities. Turning now to the pharma segment, a few comments. Overall this business continues to be powered by our partnerships with strong growing customers and the critical role we play in supporting their mission day in and day out. Serving more than 26,000 pharmacies on a daily basis and 10,000 specialty physician offices and clinics we're integral to their businesses and to their success meeting patients' needs. Further I'm proud that our team continues to develop innovative new ways to enhance the value we provide the customers. After performance revenue for the segment was up 8% to $33.7 billion. As anticipated our generics program remain the most significant profit headwind and overall generic market dynamics remain consistent with prior quarter. On the…

Thanks Mike and thank you all for joining us this morning. We're pleased with the second quarter performance. We're seeing progress in many areas as some of our strategic priorities begin to translate into results. Today, I'll focus on three areas our Q2 results, our full year outlook and updates on a few of our strategic priorities. Overall performance in Q2 was better than anticipated due to a few factors. Several businesses exceeded our expectations, we saw volume favorability in the pharmaceutical segments, better than anticipated expense trends and a favorable ruling regarding the New York State opioid assessment. Off note, there was also some positive impact from a timing perspective with corporate expenses and other areas. Total company revenue increased to $37.7 billion up 7% versus prior year. Total company gross margin was down 7% from last year to about $1.7 billion. Operating earnings were $637 million. Our effective tax rate in Q2 was 28.5% a 2.3 percentage point increase was prior year driven by tax reform and discrete tax items. Our EPS for the quarter was $1.29, a 15% decrease versus last year. During Q2, we saw a 3% improvement in SG&A due to a divestiture of China distribution and naviHealth businesses as well as the early benefit from our ongoing cost optimization efforts which I'll discuss when I cover our strategic priorities. Interest and other expense increased 18% versus prior year to about $97 million in Q2. This was driven by the change in the value of our deferred compensation plan. As a reminder, this mark-to-market adjustment has an equal offset in SG&A expenses and the net impacts through bottom line is zero. Q2 average diluted shares outstanding were approximately 300 million, about 16 million fewer shares than last year largely due to the approximately $600 million…

[Operator Instructions] and we'll take our first question from Ross Muken with Evercore. Please go ahead.

I'd love maybe a little bit more color on sort of the specialty solution outperformance, maybe just a bit of sort of background on maybe couple of the pieces that are kind of contributing and seems like that business is been sort of outperforming now for some time and maybe just give us a feel for in the context. I think the space trying to get better economics on those sort of relationships both on some of the manufacture service but on the base distribution and how you've sort of done in terms of essentially getting fair value for the services you're providing in that business.

Thanks Ross. Appreciate the question. I would say that the performance in specialty is really cuts across several different areas. First of all, our operating downstream to our both physician offices and clinics we continue to see good traction there. Continuing to win some volume in that space and so that's been generating some of the better than expected performance for us. We've also been able to see benefit from just the pure growth of the specialty business alone. Our manufacture partners continue to launch new items, grow their share and that's obviously benefiting us. We've also had strong cost control in our specialty unit like the rest of our units. They're getting after, their activities and really focusing on what are the value added activities. And then lastly our upstream services we continue to gain traction in our hub, our 3PL business continues to win share and so really it's across the board. I wouldn't say it's any one thing particularly that stands out, it's just more across the board, it's all the performance by the team.

That's helpful and maybe, just to follow-up. It seems like inflation kind of came in at least on the branded side in line. In lieu of all of this sort of noise coming out of the government and Azar sort of latest proposal. I guess how are you thinking about sort of the inflation environment for the rest of the year and what you're going to see maybe for the foreseeable future.

Yes it's a great question. At least for this fiscal year, I would tell you that really - January is really the month that we expect it to see all of the inflation. So we have very, very little built in for the rest of the year. So that is not something that we would call out as a risk for the second half of the year. It was really a big focus on January for us, would have come within that range that we were expecting. It did come in within that range, inflation that we were expecting and we were able to work with our manufacturing partners there and really get about what we were expecting. So for the rest of the year, it's really not a factor. As far as next year it's just a little too early for us to comment on that. There's so many moving parts related to that and some of our agreements will be obviously expiring and looking at renegotiating and so we're going to be looking at trying to move more to non-contingent as we can, since we're well over 90% in fact, we're nearly 95% at this point in time that we would look to move more there as we can, but again nothing to rest of the year of any materiality.

Operator, next question.

We'll take our next question from Robert Jones of Goldman Sachs.

I guess Mike, maybe just to pick up there. If I look at the implied back half guide specifically for the pharma segment, the revenue trending above original expectation so you raised the expectations for the full year there, you left the EBIT expectations the same. So obviously implying slightly worse EBIT in the back half than maybe what you were previously thinking. Just little curios if there is any changing dynamics or things in the marketplace that you're seeing today that maybe you weren't seeing when you laid out the original fiscal 2019 plan that might help explain the maybe implied lower EBIT margin expectations in the back half.

Bob, good morning. This is Jorge. Let me try to help you with that. The first thing I would say is, we with the first half of the year behind us, we feel good about our guidance. We feel so good that we decided to raise our total guidance for the year. If you look at the over performance in Q2, you probably want to think about it in three buckets and certainly from an operational perspective some of our business have been better. We talk about specialty, strong volume in pharma distribution was good in the quarter and some of the business units within the medical segments performed well and so that is given us confidence for deliver results in the second half of the year. The trending is good from an operational standpoint. In Q2, we also had one-times are non-repeatable items or items that impact - don't have any impact to the bottom line. So for example, the ruling in New York about the opioid assessment, this is something that we have accrued for in Q1, we reversed that amount and then some amount that we had contemplated for Q2 we did not have to accrue and then finally there are some sizable items related to for example deferred compensation for a compensation had a positive impact in SG&A, but a negative impact of the same magnitude in below the line with the net zero impact to the bottom line, so that is something that has no bearing with respect to trajectory going into the second half. And we had some corporate expenses timing between Q2 and Q3 that again they have no impact to the overall year. So when we look at the benefit in Q2, all the R's and O's, the trajectory of the business as we decided to raise guidance and based on all of those factors this guidance reflects our best estimate for the second half, which by the way as I said before we feel good about the trajectory of most of our businesses within the context of the guidance we're providing.

Great, that's helpful Jorge and I guess maybe just a follow-up on the pharma segment. Not necessarily new news, but you guys highlighted the generic program as remaining a very large headwind. I just wanted to better understand what's at play there. Is this just because you're lapping strong contribution from last year or is there some changing dynamics in the generic marketplace that is weighing on the generics business.

Yes, thanks for the question. I wouldn't say it's anything new, in fact what I would say is that our generic program performance remains essentially consistent quarter-to-quarter. Remember it's made up of several different things. We're seeing sell side deflation remain consistent quarter-to-quarter. Obviously we've said in the past, we'd like to see that improved but it is least remaining consistent. We have also our buy side Red Oak continues to perform as expected and then we have launches and penetration all of again which are about as expected, but that sell side deflation as we noted at the very beginning of the year, we felt that the pressure from the sell side would offset the positives we see and launches penetration and costing and there would be a net headwind for the year and that continues to what we're seeing. So I wouldn't say there is anything new, but when we look at it in total, the program continues to be our largest year-over-year headwind.

Operator, next question.

We'll take our next question from Charles Rhyee with Cowen. Please go ahead.

I want to go back to sort of the early comments around the specialty segment. The performance you're talking about and certainly performance in the overall revenue pharma segment kind of mirrors what we're seeing across the peer group as well. Is there anything sort of characteristic you said that's changing the market overall as well that is kind of that we're kind of seeing this occur more broadly based.

Not being [indiscernible] out to me, I mean it continues to be a strong growing market. So it's one of the fastest growing components obviously, the pharmaceutical segment. So I just think the pure market growth, the manufacturers are doing a good job of driving growth on their drugs and we're benefiting from that growth from them. And then as I said, we continue to see improvements on our both our downstream penetration with accounts and growth of new accounts and then upstream, we've had some businesses that we've talked about that we were working on and growing for instance our hub which was still relatively a new business continues to improve its performance and our third party logistics business continues to win in the marketplace with the investments we've made in that business, so I wouldn't say anything specific other than it is just overall a strong growing market and we participate in many different areas in it.

Okay and then maybe follow-up for Jorge. I think last quarter you said you were expecting the second quarter consolidated operating profit to be more sort of in line with 1Q. I think you've touched on some of the factors that have lifted the outperformance here in the second quarter. Was there anything - were there any other drivers that you point out and maybe you can help size some of these for us. Thanks.

I already kind of listed all of the items that resulted in the over performance as I've said before. Good underlying trends in most of our businesses and then we had some one-timers related to corporate or timing issues related to corporate expenses, deferred compensation. I think I've covered all of the items that really explain what happened in the quarter relative to our expectations, we're really pleased with how the business has performed this quarter.

Operator, next question.

We'll take our next question from David Larsen with Leerink. Please go ahead.

Can you talk a little bit about Cordis, I think you said that there is more effective management around consigned inventory. Did revenue for quarters grow? And what exactly is leading to that, tighter management, the inventory where new technology systems deployed, were new folks hired? Thanks a lot.

Thanks for the question, Dave. Cordis in the quarter was not a driver for us. We continue to make progress. The stabilization plan that Jon Giacomin and team are leading is yielding good results from an operational perspective. Our metrics in that business continued to improve. I think overall the commercial health of that business has been good for a [indiscernible] quarters now and with respect to specific around infrastructure and technology, is what we have discussed before. We have been working pretty intensively in terms of having better data, their demand planning systems, processes around consigned inventory have been put in place and we're beginning to see the overall results of all of this work. So given all of that, we continue to expect that Cordis will be on a [indiscernible] to profitable growth by the end of fiscal 2019.

Okay and then did revenue grow for quarters?

As I said before, the trend in the business has been positive for the last several quarters and the commercial health is good. There is as I indicated in my prepared remarks overall in the medical segment, FX, foreign exchange was a small headwind in the quarter and that impacts kind of all of our businesses across the medical segment.

Operator, next question.

We'll take our question next from Ricky Goldwasser with Morgan Stanley. Please go ahead.

When we think for the second half of the year? If we normalize, do you have I think a little bit lower tax rate and lower share count and when we normalize for that. The second half guide seems to indicate a very wide range down on EPS down 4% to up 3%. So when you think about kind of that range, what should we be, what are you watching forward? So what are the risks that could lead you to kind of dead down 4% that could materialize in the next couple of quarters because you know what branded inflation, so you have a pretty good sight of view to that. So what are the other things that could materialize in the second half for you?

Thanks Ricky for the quarter. As I've said before we have been looking at the entire cadence of the quarters with first half behind us, we feel much better about the cadence, about the ramp from first half to second half. There are always items that could create some changes and starting with probably the easiest one that you've seen a few times looked [indiscernible], the tax rate we have narrowed the range of the tax rate but it could be from quarter-to-quarter, it could fluctuate. We could continue to watch other drivers of profitability in each of the segments. In the case of medical, I indicated that for example cost especially around raw materials is we're seeing good signs in terms of spot market prices, that is something that we continue to watch. So there's a lot of puts and takes and when we put all of those together. We believe the second half of reasonable good ramp up for us and the range is reasonable. I think the most important point is, overall we're raising the bottom of a range, we're raising the top, we're narrowing the range and that is a good indication that net-net all of our risk and opportunities are trending in the right direction and we feel more comfortable about the rest of the year.

Okay and then one follow-up. When you talk about revenues, you talk about obviously the specialty, the medical, the strong prints volume in pharma. Can you just explain to us and what is driving the strength in brand volume? Because we're not necessarily seeing in IMS [ph] so what's driving that better performance on the branded side.

I think it's more customer mix than anything. We partnered with some very strong customers in the marketplace that I think are growing nicely and through a combination of mostly organic growth with probably some small M&A themselves there and we're just benefiting from being partnered with strong partners. I think it's really what is, was this than more than anything else.

Operator, next question.

We'll take our next question from Michael Cherny with Bank of America. Please go ahead.

Jorge I want to revisit some of the delta at least in terms of the two quarter performance. You talked about some level of timing related to corporate expenses. That being said, the original commentary you grew sequentially EBIT by about $96 million, usually there is a typical sequential step up in this quarter. But if you think about what was different from this quarter. How much of it was timing oriented versus how much of it was structural in terms of some of the restructuring programs and business optimization that you're pursuing.

Michael, thanks for the question. I won't be able to tell you exactly the relative magnitude of each of the pieces, but I would tell you the items that were timing related or that had no impact to the bottom line are sizable. So good performance from a lot of our businesses, but those two items timing of corporate expenses and is a pretty sizable items. So that is one of the key reasons why we're not letting that flow through in the guidance for the rest of the year.

Understood. Thanks I'll get back in the queue.

Operator, next question.

We'll take our next question from Lisa Gill with JP Morgan. Please go ahead.

Mike, I just wanted to go back to your comments around quarter three. You talked about refinding the geographic footprint. I think when [indiscernible] together last month, you talked about going from roughly 60 countries to maybe around 45. Can you give us more color on, is that the right number to think about that you're going to go down to 45 countries for Cordis? I understood you said profitability by the end of the 2019, but can you also just leave in your thoughts around Cardinal brand products. We thought an increase in cost here in this quarter, but are there opportunities when you think about the countries now that you're overlaying in Cordis. Have you made the investments you need to make, so that when we think about going towards the back half of this year and that profitability is that driven by your branded products?

Yes, thanks for the questions. Let me try to catch on each one of those. First of all I think, Cordis, there's probably two things we're doing to try simplify the business. One is, not only reducing the number of countries and your numbers you mentioned are approximately right. But we're looking to continue to reduce that number and we're being very specific and detailed as we evaluate each country to make sure that at the end of the day, we're looking at what is the true growth potential in that country, what are all the other potential hidden cost and risk that might be in that country compared to our current footprint and ability to grow? How might we be in that country in a different way? Do we have to have our own commercialization and can we just work with distributors? But I would fully expect to see us continue to reduce our footprint little bit there. Also the other thing that we've done, is we've taken a really hard look at our skews and so far we've reduced about our skews by about 20% in Cordis because we had a lot of slow to no moving skews which again drives potential inventory risk, also manufacturing cost and so we're trying to focus our customers on the skews that matter for us and move them from slow to no moving type of skews that were out there and move them to the right mix of skews to help our cost structure. So those are two big things that we're doing in Cordis and as Jorge said, the commercial health of the business continues to be strong and we have seen some FX headwinds, but the overall commercial strength continues to be strong and we continue to try to be very careful about, the way we're going after some of our SG&A right now. While we maintain that top line and clean up some of these other things like inventory visibility in that. As far as our Cardinal Health branded products. I would say that, we're really taking a holistic approach on those, to look not only at the breadth of that line where we manufacture it, how we manufacture it i.e. our overall global footprint. But also taking a look at those countries where we sell those products and are we doing it in the right way. So we want to play in the countries where we believe there is future growth and where we can win and obviously look at other opportunities up to an including exiting countries where we don't think it has the right growth trajectories or the opportunities for us to win.

Great. And I guess just follow-up [indiscernible] Jorge. I know everyone keep coming back to try and understand the cadence of earnings. Just so I understand that correctly, when you last told us that things would look sequentially similar between the two quarters. You were not anticipating New York state opioid being reversed. You were not anticipating that, the expense timing around some things and some of the benefit being pulled forward to December as well as deferred comp. so those are kind of the three things that when you look at that, that was the big difference between when we spoke last and what you actually reported in the quarter? Is that the right way to think about it?

Correct. Lisa. It's exactly right. Those are the unexpected pieces that all came in our way.

Operator, next question.

We'll take our next question from Steven Valiquette with Barclays. Please go ahead.

So another question from me and coming back to the commodity spot pricing and timing etc. it sounds like you're really not raising the guidance today for that metric. You cited the other three buckets of outperformance for fiscal 2Q. But you know - as coming back to our discussion around this last quarter as you guys mentioned it's hard to calculate the overall inflation, but you do have the example in the 10-K that again the hypothetical 10% increase in key commodity inputs will be about $0.10 hit to overall EPS. So now some of these trends are softening in your favor, you mentioned the data points and everything else. I guess I'm just curios within the current guidance range, could less commodity inflation risk still be EPS driver into the magnitude of $0.10 plus within the guidance range. Just curios for the back half of the year how much climbing inflation could move EPS, was really what the question is?

Steven good morning, thanks for the question. So commodities and raw materials costs continues to be a headwind for the rest of the year up. What I indicated earlier is, that is trending in the right direction. However there is always a long lag between the time we see those positive changes in the spot markets and when we see the benefits in the P&L. So I think the most relevant part about that payment is that, is one of the reasons why we are comfortable with raising guidance because although it continues to be at risk based on the spot prices we're seeing today. We don't believe at this time that could get worse for the rest of the year and so that's how we're thinking about that piece.

So just to be clear then, so the guidance raise today does incorporate a little bit the better outlook on climbing inflation.

Yes. All of the - it is - our views on the trending on commodities is one of the factors that is contemplated in guidance.

Operator, next question.

We'll take our next question from Eric Percher with Nephron Research. Please go ahead.

Mike, with respect to the HHS proposal last week and also starting to think about what a world of discounts might look like, there's a question raised around how the actual flow of funds may occur in maybe, if there's a role for distributors to play. I think for your peers, we understand some of their assets and relationships that enable them to play, could you tell us a little bit about how Cardinal might be able to play a role?

Yes absolutely. First of all, this announcement around the safe harbor changes was not unexpected. And as you can imagine we like many other support efforts to lower prescription drug cost for patients and we're truly committed to engaging with the administration and the entire system to figure out how best to do that. That being said, I guess I would to your answer I'd probably put it in two buckets. I agree there are opportunities for the industry as the whole to help facilitate solutions to get rebates possibly down to the patient. The best way to think about it is, we just like our competitors maintain sophisticated charge back systems already with the manufacturer and with our customer. so every day we're managing thousands of transactions between customers and suppliers and so while this would be definitely be at a more detailed level, if we needed to do something down to the patient that the script. It is something that, as a company and as an industry we believe that we could get after and it's something that I think that the whole industry understands well. The importance of the role that we play in healthcare in general and the important role that we play for manufacturers to be able to do this, so I do think that we are as well as positioned as anybody to continue to help in that. And then, I know some people have some concerns would it change the overall list prices and other things like that in the marketplace and I think, well if it did, we do feel confident in our value proposition that we talked about multiple times that we work with manufacturers. They understand the value of our proposition and we constantly work with them around that and that we'll be able to adjust, our overall pricing mechanisms with manufacturers to remain whole on the dollar set we receive [ph].

I appreciate both those comments. So I understand that charge back piece, is there any role that Cardinal plays today at the point of sale?

Yes, in some ways we do. Obviously we work with customers for instance in the area of medication therapy management. Whether you call that point of sale? Are we connected with our customers pharmacy systems? Yes through inventory management, through medication therapy management and through other connectivity of communicating with our pharmacy customers on a daily basis. Yes, we have connection with them specifically related to this particular issue. I think we have enough connectivity that we can work with them through other solutions and through opportunities with the industry to drive benefit.

Operator, next question.

We'll take our next question from Brian [indiscernible] with Jefferies. Please go ahead.

Jorge, just a question on margins. As I think about the pharma segment, obviously you had some you're still trying to lap some repricing. But how are you thinking directionally about margin trend past the next quarter in the pharmaceutical segment? Thanks.

Thanks for the question. So as we go into Q3, as all of you know Q3 is our best quarter in terms of pharmaceutical segment margin profit, so that's going to be normally higher than Q1, Q2 and even Q4. Other than that, I don't see any significant change with respect to margins, trends and to pharma business. Obviously a lot of cost initiative that Mike was referring to, a lot of pricing initiatives that we have going on. We are always trying to expand margins in that business and across all businesses. So I don't expect to see any again other than the seasonality in Q3 related to brand inflation. And for this year, within the guidance range we've provided I don't see any major fluctuations in margins for this pharma segment.

Got it. Thank you.

Operator, next question.

We'll take our next question from John Ransom with Raymond James. Please go ahead.

Just following up on that last question. I think we've all - we've been in a three-year journey of margin decline in pharma high single-digit, low double-digit declines. Are you now saying the current, so let's say that your sustainable revenue growth is in the 7% range, are you now saying after lapping this year you think you can hold margins flat and generate high single-digit revenue growth in that segment, are we still looking at margin pressures on absolute basis because of all the things you talked about.

At this point in time, we're not going to get into FY 2020 guidance. All I can really say is that, we feel good about who we're partnered with our customers and continue to feel that we've partnered with the right folks, we'll win as they win in the marketplace and but as far as margin rate, the impact of our generics program year-over-year. It's just a little bit too early to say whether that will continue to be a headwind or what size that will be next year as we continue to evaluate all of the components, we mentioned we're going to have to - have obviously our thoughts around what the sale side and deflation rates are going to be as well as launches, penetration in buy side and so little too early on that. I can't tell you, that we're going to continue to be focused on being aggressive on cost and being trying to focus on, the areas that we believe we can grow and stay laser focused on those.

Sure and just the other things I appreciate the comments. Just following up on another thread. Let's just say hypothetically that the manufacturers look at the safe harbor changes and decide to move to a low net price model and we see something like on branded drugs 30% compression and gross to net and the actual revenue dollars for Cardinal would be on the branded side, would be compressed. Just help us understand the process by you would have to go back and re-cut, I'm assuming hundreds of contracts between your manufacturers and your customers and is there any sort of safe harbor provision and your contracts are just going to be, sort of lengthy protracted re-contracting cycle as we see a big bang change in the industry pricing.

Yes great question and couple things. I think obviously we can't speak for the manufacturers, but there is an obviously a lot of things they have to look at. There are lot of implications in reducing lag prices for them that make it a very complicated and somewhat difficult thing to do for them when it comes related to returns and how they would price customers where the differentiated price setting and all those type of things, it gets very difficult. But assuming that just using as a hypothetical, if they did I think there's two things I would keep in mind. First of all remember one of the most important things to keep in mind, is that our downstream pricing is also attached to lack or list price. And so not only well our overall dollars that we earn from manufacturers be initially reduced on day one, but the overall dollars that we pass to customers would be reduced on day one, too. So there's a natural hedge against the overall size of that, that reduces some of the impact to distributors and then also, secondly as you can imagine with all the talk around this for the last 12 months or so, we have been working with manufacturers to change the way our contracts are structured, if there was a significant change it lacks to be able to renegotiate contracts quickly and for the ones that we're still in contracts with. They know our expectation and more importantly they know our value. They continue to believe, I believe in the overall wholesaler value proposition. They know through our discussions and through our work on our next best alternative that there is no better way to get their products to market, at a fair price and cost. And I believe what this industry does and believe that the pharma manufacturers do too and they want us to be healthy and so while it's not something you solve in a week, when it changes. It is not something that I would see as a longer term headwinds that our conversations have been very positive on both our value and our ability to change our agreements to reflect the dollars that we currently get.

Operator, next question.

We'll take our next question from Kevin Caliendo with UBS. Please go ahead.

Just one quick follow-up to that. What you said earlier that you thought in the contract renegotiations that, on a dollar to dollar basis, it would be the same? Are you thinking like literally in dollars or you're thinking about ROIC, meaning your inventories would be a lot less, your round of capital outlay such that your returns would look the same but maybe not the actual dollars. Or you're actually thinking that the dollars themselves in terms of the contracting you think would still remain the same.

Yes I still believe that the dollars would be the same. I think that your comment around ROIC, there might be some changes to that as you take a look at overall, the whole model and those things are always considered when we work with manufacturers. When they ask us to carry more or allow us to carry less inventory, we work with manufacturers. But generally we see this as something where we're really truly focused on the dollars that we received as the value for the services, we provide and we would expect that those dollars would be match be very similar over the long-term as where they are today.

Second question, you mentioned earlier. You don't expect any more brand price increases for the rest of the year. I'm assuming you were talking about your fiscal year. Generally speaking what about the calendar year. I'm not asking for 2020 guidance, I'm just talking about do you expect the typical June or July 1 sort of price increases as well. Do you think there is going to be anything different with that or are you expecting that for the full calendar year that January was going to be much larger percentage in terms of magnitude and depth or breadth of price increases?

Yes it's a fair question. First of all to be clear, it was our fiscal year I was talking about and that we would expect relatively immaterial increase, not - it wouldn't be zero but we don't expect a significant amount of increase as we see now in June 30. The majority was in January and it occurred within the range we expected. So that was just more to help you understand, we don't see a lot of risk, if it were absolutely zero between what we have in and what's left to do. Regarding the whole year, I don't want to get into a lot of forecasting but this past year what I can say is that, at the beginning of the year we did expect more July increases than we actually ended up seeing. So at the beginning of the year we did expect the old traditional of a little bit in July and then some spread out and more in January. Instead what we saw, was less in July and the rest of the year and more pushed to January. So while the overall dollars were less year-over-year in January or in total for the year, there was a higher percentage in the month of January and so it's hard to say for right now, but it's probably a reasonable assumption going forward, but again it's hard for us and we'll continue to listen to the administration and talk to our manufacturer partners to understand their thoughts around timing of price increases.

Operator we have time for one more question.

And we'll take our final question from Eric Coldwell with Baird. Please go ahead.

So Mike, every distributor has shown really nice revenue upside this quarter. You guys 1.7, ABC 1.6, McKesson over $1.1 billion that's summing up to about $4.5 billion in the quarter about $20 billion annualized, $18 billion annualized. So I guess my question is this, everybody say their growth is because of their big customers doing well, it's sort of unique. But it's really not unique it's the whole sector of the big three. Something has to be happening here because we have generic deflation, brand inflations running at decade low. I don't think most of us are really seeing it in the volume numbers so, I guess my question is this. There has to be a hook. I'm worried that maybe this is your big clients are actually starting to decimate the small independence. You might have a different angle on that, but I'll open it up with that.

It's a very fair question. It's hard for me to comment on everybody's customer base. Remember there are few pieces due to some acquisitions, by folks acquiring other change in other businesses in the industry, that's having some impacts on various people's growth. Also the other thing to keep in mind and we can't get into detail specific to our customers. But remember at least in Cardinal's case which I can't comment, to is some of our customers buy certain products direct and they may change some of those products from buying direct to buying through us. The amount, their timing of their inventory builds could have an impact, you can have extra day of sales or so in a quarter. It's hard for us to know exactly when they've done that and not done that. So there's probably a few things like that moving around the numbers. I wouldn't say that it's - I would say that it's totally at the expense for instance as your comment around retail independence or anything that we continue to see that class of trade. Have similar trends to the past and continue to be healthy, but there's lot of potential moving parts which is hard for me to comment on everybody's [indiscernible].

Do you think some of the changes with price transparency, the California rule etc.? Is it somehow driving your customers to maybe buy inventory in December that they might have historically bought in January or February? Is there some angle there that we should be investigating?

It's hard to say how each one of the customers evaluate their balance sheet and what they want to do. It's often hard for customers due to the limited space and stuff they have in their stores to do a lot of extra buying. But to say that I can tell you, that had zero impact I can't tell you. So it might have a had a small impact because there is, as you mentioned a little bit more visibility to some of when price increases are going to occur. So that could be a potential, which is why I mentioned that you'll see potentially quarterly fluctuations on sales because of particularly when you have customers the warehouse pharmaceuticals like we do have several of our large customers warehouse [indiscernible] that depending on day of the month, their views like you said on price increases, service levels those types of things that can cause fluctuation.

[Indiscernible].

Okay, go ahead.

I will now turn the conference back to Mr. Mike Kaufmann for any additional or closing remarks.

Great, thank you very much. I want to thank all of you for joining us today because I think you can see the team continues to move forward in executing our plan and positioning Cardinal Health for the future growth. I'm proud of the work the team is doing and as we take steps to further enhance Cardinal Health's competitive position in the marketplace, support our customer base and drive shareholder value and we look forward to reporting on our future progress. Take care and have a great day, everybody.

This concludes today's call. Thank you for your participation. You may now disconnect.