What are the key drivers behind the GAAP and non‑GAAP earnings differences, and are they sustainable?

Drivers of the GAAP vs non‑GAAP split

Cardinal Health’s GAAP operating earnings of $428 million (≈ $1.00 EPS) are pulled down by a handful of “head‑count” items that the company excludes in its non‑GAAP presentation:

1. Stock‑based compensation and related expense write‑offs – a recurring cost that is fully reflected in GAAP but stripped out in the non‑GAAP line.
   
2. Acquisition‑related amortization and integration expenses – the 2024‑25 period still carries the after‑effects of the previously announced contract expiration and the integration of recent purchases, which are treated as non‑cash, non‑recurring charges in the GAAP set.
   
3. One‑off restructuring or contract‑termination costs – the “21% revenue growth excluding the impact of a previously communicated contract expiration” signals that a material portion of the top‑line is net of a large, non‑recurring contract wind‑down, which is booked as a GAAP expense but excluded from the non‑GAAP metric.

Sustainability outlook

The stock‑based compensation component is a permanent, ongoing expense, so the GAAP margin will continue to be modest unless the company reduces its equity‑grant pace. By contrast, the bulk of the acquisition amortization and the contract‑expiration charge are largely one‑off or front‑loaded; once the integration is complete and the contract wind‑down is fully absorbed, the GAAP‑adjusted earnings base should rise, narrowing the GAAP vs non‑GAAP gap. Consequently, the non‑GAAP earnings quality appears partially sustainable (driven by operating efficiencies and cost‑saving synergies) but will be diminished over time as the “ex‑contract” revenue boost fades and the amortization schedule runs down.

Trading implications

• Short‑term catalyst: The market is likely to reward the higher‑than‑GAAP earnings with a price bump, especially if analysts focus on the “clean” non‑GAAP profit and the FY‑2026 guidance lift.
  
• Risk check: Watch for any upward revisions to GAAP operating expenses (e.g., higher stock‑comp or unexpected integration costs) that could trigger a pull‑back.
  
• Action: On a modest pull‑back or a breach of a key technical support level (e.g., $140‑$145 on the daily chart), a long position with a stop just below the recent low can capture upside from the expected non‑GAAP‑driven earnings momentum. Conversely, if GAAP earnings start to show a widening gap again, consider a tight‑‑‑stop short to protect against a potential earnings‑quality reversal.