Nov. 30 (Bloomberg) -- Cardinal Health Inc., the second- biggest U.S. drug distributor by sales, plans to sell its manufacturing and packaging unit, the source of $1.8 billion in annual revenue, to focus on hospital and pharmacy customers.

Shares of Cardinal rose the most in more than two years after the Dublin, Ohio-based company said in a statement today that the proceeds from the divestiture will be used to buy back as much as $3 billion of the stock through 2008.

Cardinal is selling units outside its core business of drug and health-supplies distribution, which generated 82 percent of revenue in fiscal 2006. The plan to divest the drug packaging and manufacturing operation follows Cardinal's agreement earlier this month to sell its health-care marketing services business to Platinum Equity, a private investment firm.

``Investors will view this as a significant positive for Cardinal, as this business had recently been struggling to maintain its competitive position and since it falls outside of Cardinal's core competencies,'' Barbara Ryan, an analyst at Deutsche Bank Securities in Greenwich, Connecticut, wrote today in a note to investors.

The latest unit to be divested provides packaging and manufacturing services for pharmaceutical and biotechnology companies. The business employs about 10,000 at more than 30 sites worldwide.

Shares of Cardinal rose $2.79, or 4.5 percent, to $64.62 at 4 p.m. in New York Stock Exchange composite trading, reflecting the biggest one-day percentage gain since Oct. 27, 2004. The shares have advanced 6 percent during 2006.

Forecast

Cardinal lowered a profit forecast because of discontinued operations associated with the sale. The company now expects earnings from continuing operations in the fiscal year ending next June 30 to be $3.25 to $3.40 a share, excluding certain costs, compared with a previous forecast of $3.50 to $3.70.

The services unit packages about 100 billion doses of medication each year, Cardinal said. The company reported revenue of $81.4 billion for the fiscal year ended on June 30. The company's core pharmaceutical distribution and provider services unit generated $67.1 billion, or about 82 percent, of revenue.

Cardinal said it will retain its generic intravenous-drugs and regulatory consulting businesses that now are part of the pharmaceutical services unit. Excluding these segments, the unit has adjusted earnings of more than $300 million a year, the parent company said.

To contact the reporters on this story: Catherine Larkin in Washington at clarkin4@bloomberg.net; Angela Zimm in Boston azimm@bloomberg.net.

Last Updated: November 30, 2006 16:24 EST