Elizabeth Anderson: Got it. Thank you so much.
Operator: The next question comes from the line of Michael Cherny calling from Bank of America. Please go ahead.
Michael Cherny: Good morning and thanks for taking the question. So just to parse through your numbers a little bit, I just wanted to get a sense. You’ve had strong outperformance here to date based on typical timing, annualization and what you’re calling for relative to growth rates. It seems like there’s more opportunity for upside on your EPS. I know you talked about medical base list that you see now coming at the low end of the range. But can you give us some of the other potential concerns or headwinds that are built into this number? Just mathematically, you could argue that your EPS baseline should be higher and annualizing it, you’d get there too. So I want to make sure I understand all of the €“ I guess, takes against the positive puts that you updated in your guidance.
Jason Hollar: Yes. Thanks, Michael. First of all, overall I think it’s a balanced outlook that we have. I think a couple of the key drivers in the first half, second half I just went through on Elizabeth’s question. Interest expense is going to be higher. We expect to be higher in the second half. So that’s one of the components you’re thinking about from an EPS driver. And then pharma is a key driver as well, still solid growth in the middle of that range that we had at the beginning of the year. Not at the same pace of growth that we had in the first half, but still growth. And also just to kind of step back a little bit, and we had a similar level of growth, about 5% growth in the prior fiscal year. So now we’re on 18 to 24 months, a pretty consistent, stable, much more predictable type of growth that we’ve seen in that business as we’ve step farther and farther away from the pandemic.
And we think overall that’s balanced. Of course, in the second half of the year there’s a meaningful step up in the Medical segment performance, and that’s of course being driven more than anything by the pricing on inflation and the first instance we would expect of cost stepping down as it relates to the international freight. But all the other drivers I think are fairly consistent with what we outlined. Question, please.
Operator: The next question comes from the line of Erin Wright calling from Morgan Stanley. Please go ahead.
Erin Wright: Thanks. So you haven’t really participated much in COVID treatment or vaccines, obviously with the contracts that are out there. But as those open up to the private market, could that provide an opportunity for you as we’re looking into next year? And maybe thinking about some of those other anomalies kind of into next year, what are some things that you’re thinking about in terms of opportunity across that core Pharma segment as well in terms of drivers? Or is it a continuation of the same in terms of specialty drivers in other ways? Thanks.
Jason Hollar: Sure. Thanks, Erin. Overall, first of all, as I think about fiscal 2023, it’s a fairly normalized level performance that we have in our current outlook. Again, growth for the reasons I highlighted is a little bit stronger in the first half than what is in our longer-term targets. And we’ve seen that very broad strength that I would not expect to continue long-term at that pace, especially when we consider that incremental new customer. The longer-term, I think what this year reinforces is that we’re on track for those long-term growth targets. Specifically to your question around COVID therapies and vaccines, you have it €“ your inclination is correct. We’ve participated very little on any of that. Over the pandemic, frankly, we’ve had more of a headwind than a tailwind because the volume impacts on our underlying utilization.
Of course, we’re all the way through that at this point in time and have been so for about a year. So we’re at a very normalized level at this stage. As it relates to commercialization, I think all data points point to that beginning in the summertime, of course, after our fiscal year, so certainly no impacts for 2023. There would be some opportunities for 2024 and beyond. However, I’d highlight the types of products and vaccines we’re talking about historically outside of the pandemic have not been significant drivers of profitability. So it’s something that should be a tailwind, but I would not jump to the conclusion that it will be as significant as what we’ve seen in the marketplace for others, given how the government had isolated that and procured for that.
So something we’ll keep an eye on and clearly something we’ll be providing some context for further as we understand it better and as we get closer to the €“ that point in time. And the one final point on that is even though the commercialization is scheduled for the summer, there’s certainly a lot of dialogue and uncertainty as to exactly how much a stockpile within the government and how long will it take for that to work through. So while it may go commercial, it could take us some time to actually see a pull in terms of non-governmental sources. Next question, please.
Operator: The next question comes from the line of George Hill calling from Deutsche Bank. Please go ahead.
George Hill: Yes. Good morning, guys. And I appreciate you taking the question. And I guess, Jason, my question’s probably a derivative of Mike’s question, which is kind of given the guidance for the year and the expectation to the back half, it would seem that the Street is probably too high. So I guess maybe could you talk about the big moving pieces just as it relates to the back half of the year? And should we think about the current guidance as probably a little bit on the conservative side? Or are there real areas of weakness, particularly in medical that we should be worried about in the back half of the year as it relates to where the company claims to deliver results, kind of versus where the Street is?
Jason Hollar: Sure. I’ll try George, but I’m afraid it’s going to sound very similar to what I said to Michael. Again, I feel good about the balance that we have here. I feel very good about the progress to date. We have growth €“ implied growth in the middle of the range for farming the second half of the year. So if volumes continue at a more recent pace, then we’d have some opportunity. On medical, a lot has to occur still for us to execute upon our plan. It’s very consistent with the plan. We have good step up expected to continue sequential improvements. This guidance provides us sequential improvement for each and every quarter throughout the year. We would anticipate the next quarter €“ next two quarters to have sequential improvements as it relates to the ongoing pricing for inflation, the ongoing cost reductions, a gradual improvement in volumes.
But importantly the big step up will be in the fourth quarter as we see international freight, which is a very high confidence element now, given that we’re now less than six months by the end of the year. These lower costs are almost certainly going to flow €“ start to flow through our P&L here in the fourth quarter, still at levels well below the pricing we’re getting. But nonetheless, that’s a pretty well-known part of that equation. So a lot of action still in front of us, but the plan remains entirely intact. And so when you talk about the first half €“ second half, you’re implying there’s some difference somewhere. And I think the primary difference is related to the growth within Pharma, still growing. And maybe one other point that remember, Q4 of last year for Pharma was a very strong quarter €“ we had very strong growth.
It was a good quarter, and that’s one that we still anticipate there being growth on top of that this year as well and that low to mid single-digit range. So we feel good about where we’re at. There’s opportunity in Pharma. There’s some things we got to watch out on Medical, and we continue to execute all the below line items very consistent to our expectations. Next question, please.
Operator: The next question comes from the line of Andrea Alfonso calling from UBS. Please go ahead.
Andrea Alfonso: Thank you so much, Trish and Jason. Appreciate you taking the question. So just on the Med/Surg side, again, you’ve discussed the different tranches of price increases on the Med/Surg side that you’re going to be taking with customers. I guess we just sort of love to get a qualitative update on GPO and customer receptivity in general. And should we expect, as we think about the cadence for the second half that, that would €“ those were more fully manifest in the numbers in 4Q? And again, sort of just as a corollary to that, you’ve highlighted some investments around private label. With the current constraints in the purchasing environment for hospitals, have you observed changes in just the general appetite here for private label? Thanks so much for the question.
