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CVS Health announces results of solid Q3


WOONSOCKET, R.I. — For the third quarter ended Sept. 30, CVS Health reported $38.6 billion in net revenues, representing an increase of 10.3%. Revenues across the Pharmacy Services Segment increased 13.3% to $25.5 billion, primarily driven by growth in specialty pharmacy and pharmacy network claims. 


“We delivered solid revenue and operating profit growth across our businesses, and we continue to expect significant growth in the fourth quarter, rounding out another terrific year for our company,” Larry Merlo, CVS Health president and CEO, said. “Year to date, we generated $3.4 billion of free cash, and we are on pace to return more than $6 billion to our shareholders through dividends and share repurchases in 2015," he said. "The third quarter included the closing of the Omnicare acquisition in mid-August, and we are very optimistic about the potential that this long-term care business creates for us. It provides a new pharmacy dispensing channel, enhancing our ability to provide continuity of care for patients as they transition through the health care system. At the same time, we look forward to closing the Target pharmacy acquisition, which will enable us to reach more patients, add a new retail channel for our unique offerings, and expand convenient options for consumers.”


Same-store sales for the retail drug stores increased 1.7% versus the third quarter of last year, with pharmacy same-store sales up 4.6% and pharmacy same-store prescription volumes up 4.4% on a 30-day equivalent basis. Pharmacy same-store sales were negatively affected by approximately 450 basis points from recent generic drug introductions. 


Front-of-store same-store sales declined 5.8%. The company said that front-of-store same-store sales would have been approximately 490 basis points higher if tobacco and the estimated associated basket sales were excluded from the three months ended Sept. 30, 2014. Front-of-store same-store sales were negatively affected by softer customer traffic, partially offset by an increase in basket size, the company said.


Pharmacy network claims processed during the period increased 9.3% to 229 million, compared to 210 million in the prior year. Mail choice claims processed during the period increased 5.6% to 21.9 million, compared to 20.7 million in the prior year. The increase in mail choice claims was driven by specialty and continued adoption of CVS Health's Maintenance Choice offerings.


As a result of the acquisition of Omnicare, which closed Aug. 18, CVS Health's Pharmacy Services Segment now also includes the specialty pharmacy operations of Omnicare. The company's Retail Pharmacy Segment includes the long-term care operations, as well as the commercialization services, supply chain solutions and patient support services of Omnicare, and has been renamed the "Retail/LTC Segment." 


Revenues in the Retail/LTC Segment increased 6.9% to $17.9 billion. Approximately half of the increase was driven by the addition of LTC operations acquired as part of the Omnicare acquisition in August 2015. The LTC operations include providing the distribution of pharmaceuticals and related pharmacy consulting to chronic care facilities and other care settings. 


For the three months ended Sept. 30, the generic dispensing rate increased approximately 130 basis points to 83.8% in the Pharmacy Services Segment and increased approximately 140 basis points to 84.8% in the Retail/LTC Segment.


Given the solid performance this quarter and the closing of the acquisition of Omnicare, the company narrowed guidance for the full year 2015 by raising the low end, and now expects to deliver Adjusted EPS of $5.14 to $5.18, up from $5.11 to $5.18. This Adjusted EPS guidance includes Omnicare's operations and the July 2015 debt financing and excludes the effect of acquisition-related bridge financing, transaction and integration costs that have been recorded and that are expected in the fourth quarter.


CVS Health continues to expect to deliver 2015 free cash flow of $5.9 billion to $6.2 billion, and 2015 cash flow from operations of $7.6 billion to $7.9 billion.


As of Sept. 30, CVS Health operated 7,911 retail drug stores in 44 states, the District of Columbia, Puerto Rico and Brazil.

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