CVS Health's pandemic strategy continues to pay off in Q2
While continuing to play a role in battling the pandemic, CVS Health’s second quarter brought increased revenue and earnings that beat Wall Street expectations.
The Woonsocket, R.I.-based company saw second-quarter revenues up 11.1% year over year, totaling $72.6 billion, posting earnings per share of $ 2.10— a decrease of 7% over the prior-year period, but 35 cents higher than analysts expected and a strong enough showing for the company to raise it's full-year guidance. Total revenues for the six months ended June 30, increased to $141.7 billion, up 7.3% compared with the prior-year period.
Operating income and adjusted operating income decreased 7.6% and 8.3% year over year, respectively, compared with the prior year. The company attributed the decreases to the return of more normalized utilization levels in the healthcare benefits segment following a significant decrease in utilization during the prior-year period due to the COVID-19 pandemic. The decrease was partially offset by increased prescription and front-store volume, COVID-19 vaccinations and diagnostic testing in the retail/LTC segment, as well as improved performance in its pharmacy services segment.
“We delivered another quarter of strong results and once again raised our outlook for the year,” said CVS Health President and CEO Karen Lynch. “This quarter was highlighted by broad sales and earnings outperformance, as well as sequential operating margin improvement. We continue to play a critical role in helping America prevail against the pandemic while demonstrating the effectiveness of our unique business model, which is focused on meeting customer needs through innovations that make health care more local, affordable and connected.”
Revenue from CVS Health’s retail/long-term care business increased by 14.2% in the quarter compared with the prior year. CVS Health said this growth was primarily driven by increased prescription volume, COVID-19 vaccinations and diagnostic testing and higher front store revenues across all product categories. These increases were partially offset by continued pharmacy reimbursement pressure. COVID-19 vaccinations and diagnostic testing contributed nearly a third of the increase in the segment’s revenues for the quarter compared with the prior year, as the prior year included an immaterial impact from diagnostic testing and no COVID-19 vaccinations, CVS Health said.
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Adjusted operating income for the retail/long-term care segment increased 93.9% for the quarter, compared with the prior year. The increase was primarily driven by the increased prescription and front-store volume, COVID-19 vaccinations and diagnostic testing and a $125 million gain from an antitrust legal settlement recorded in the three months ended June 30, 2021. These increases were partially offset by continued pharmacy reimbursement pressure. COVID-19 vaccinations and diagnostic testing contributed approximately half of the increase in adjusted operating income for the three months ended June 30, 2021 compared to the prior year.
Prescriptions filled increased 14.2% on a 30-day equivalent basis for the three months ended June 30, 2021 compared to the prior year. The increase was primarily driven by COVID-19 vaccinations, as well as the continued adoption of patient care programs and increased new therapy prescriptions, both of which were adversely impacted by the COVID-19 pandemic during the three months ended June 30, 2020. Excluding the impact of COVID-19 vaccinations, prescriptions filled increased 9.3% on a 30-day equivalent basis for the three months ended June 30, 2021 compared to the prior year, CVS Health said.
Revenues from the pharmacy services segment increased 9.8% for the quarter, compared to the prior year. The increase was primarily driven by increased pharmacy claims volume, growth in specialty pharmacy and brand inflation. This was partially offset by continued price compression.
The pharmacy services segment’s adjusted operating income increased 32.3% for the quarter, compared to the prior year. The increase was primarily driven by improved purchasing economics that reflected products and services of the company’s group purchasing organization that was launched in the second quarter of 2020 and specialty pharmacy (including pharmacy and/or administrative services for providers and 340B covered entities), as well as increased pharmacy claims volume. This was partially offset by continued price compression.
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Total pharmacy claims processed increased 11.2% on a 30-day equivalent basis for the three months, compared to the prior year. The increase was primarily driven by net new business, COVID-19 vaccinations and increased new therapy prescriptions, which were adversely impacted by the COVID-19 pandemic during the three months ended June 30, 2020. Excluding the impact of COVID-19 vaccinations, total pharmacy claims processed increased 8.4% on a 30-day equivalent basis for the three months ended June 30, 2021 compared to the prior year.
Revenues from the healthcare benefits segment increased 11.1% for the three months, primarily driven by growth in the government services business. These increases were partially offset by the unfavorable impact of the repeal of the HIF for 2021.
The healthcare benefits segment’s operating income decreased 53.4% for the quarter, compared with the prior year. The decrease was primarily driven by the deferral of elective procedures and other discretionary utilization in response to the COVID-19 pandemic during the three months ended June 30, 2020.
CVS Health raised its full-year 2021 GAAP diluted EPS range to $6.35 to $6.45 from $6.24 to $6.36 and its full year 2021 Aajusted EPS guidance range to $7.70 to $7.80 from $7.56 to $7.68. The company also raised its full year 2021 cash flow from operations projections to be in the range of $12.5 billion to $13.0 billion from $12.0 billion to $12.5 billion.