February 7, 2017 / 5:20 PM / a year ago

UPDATE 3-Cardinal Health profit beats estimates on lower costs

(Adds conference call details, shares)

Feb 7 (Reuters) - Cardinal Health Inc reported a better-than-expected quarterly profit on Tuesday helped by lower costs and tax rate even as the drug distributor faced generic pricing pressure.

Shares of the company, which also cut its 2017 forecast for adjusted earnings from continuing operations, were up 3.8 percent at $78.88 in morning trading.

Pricing pressure for generic drugs and slower pace of brand price increases have affected the drug distribution market.

Rival McKesson Corp reported last month lower-than-expected revenue, citing slowing pace of branded drug price increases amid increasing scrutiny over price hikes.

Drug pricing has become a lightning rod for criticism with several drugmakers coming under federal investigations.

Cardinal said profit from its medical unit rose by 50 percent to $159 million in the second quarter ended Dec. 31. The company operates two divisions - pharmaceutical and medical.

“Medical segment’s absolute performance and revenue increase is encouraging,” Baird analyst Eric Coldwell said.

Based on first-half performance, Cardinal Health’s Chief Executive George Barrett said it expects its second half to be “somewhat better”.

The company cut its 2017 forecast for adjusted earnings from continuing operations for the second straight quarter to $5.35-$5.50 per share from $5.40-$5.60.

The forecast includes assumption of generic drug price deflation in the high-single digit range, the company said.(bit.ly/2knrYap).

Excluding items, Cardinal Health earned $1.34 per share, beating average analysts’ estimate of $1.23, according to Thomson Reuters I/B/E/S.

Cardinal, which also makes surgical apparel and gloves, said expenses fell 1.3 percent to $910 million in the second quarter.

The company’s quarterly revenue came in at $33.15 billion, missing estimates of $33.55 billion.

“While management tends to be conservative, we suspect that price competition will have a negative impact on margins over the coming quarters,” William Blair analysts said.

The pharmaceutical unit’s profit fell 14 percent to $537 million, due to generic pharmaceutical pricing and the loss of a large pharmaceutical distribution customer.

Reporting by Dipika Jain in Bengaluru; Editing by Anil D'Silva and Shounak Dasgupta

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