By Melanie Evans and Austen Hufford 

Cardinal Health Inc. became the latest drug distributor to warn that the slowing pace of branded drug-price increases, and lower generic-drug pricing, was hurting results.

During a conference call, Chief Executive George Barrett said the company faces a "very challenging" environment, as drug manufacturers react to criticism of high drug prices and pharmacies shop among distributors for the best generic prices.

"The election cycle is creating an enormous amount of discussion and noise, which I do think has an effect on the way people behave," Mr. Barrett said.

Cardinal and other distributors act as middlemen between drugmakers and pharmacies. Their contracts with branded pharmaceutical companies often allow them to benefit from rising drug prices. As some branded drugmakers rein in price increases, that benefit to distributors gets squeezed.

Cardinal lowered its profit guidance for the year, citing generic pharmaceutical pricing and reduced levels of branded drug price increases. The earnings retreat by Cardinal is the latest sign that drug price inflation may be moderating under intense public pressure.

The company's profit from its pharmaceutical division dropped 19% in the quarter from the prior year, in part as a result of pressure on generic prices from the wholesaler's customers, Mike Kaufmann, the company's chief financial officer told analysts.

Rival distributor McKesson on Thursday said it also faced pricing pressure last quarter as competition intensified.

Cardinal now expects generic drug prices to fall in the mid-to-high single digits in the current fiscal year, compared with its earlier expectation a mid-single digit decrease. It also expects branded drug manufacturer prices to increase 7% to 9% in the year, down from 10% previously.

Cardinal Health now forecasts annual adjusted earnings per share of between $5.40 and $5.60, down from $5.48 to $5.73 previously.

Shares of many drugmakers, wholesale distributors and pharmacy-benefit managers were battered Friday as evidence emerged that drug companies aren't increasing prices as sharply as in previous years. Cardinal shares rose 2.4% Monday afternoon after falling sharply on Friday along with the rest of the sector.

For the period ended Sept. 30, Cardinal Health reported a profit of $309 million, or 96 cents a share, down from $383 million, or $1.15 a share, a year prior. Excluding certain items, per-share earnings fell to $1.24 from $1.38.

Revenue increased 14% to $32.04 billion.

Analysts polled by Thomson Reuters expected per-share profit of $1.21 and revenue of $31.04 billion.

Pharmaceutical segment revenue climbed 15% to $28.80 billion, while medical segment revenue grew 14% to $3.3 billion.

Write to Melanie Evans at Melanie.Evans@wsj.com and Austen Hufford at austen.hufford@wsj.com

 

(END) Dow Jones Newswires

October 31, 2016 14:00 ET (18:00 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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