CVS Health offers 2018 outlook
As it forges ahead with its proposed acquisition of Aetna, CVS Health on Thursday shared guidance for its 2018, during which it said it expects its operating profit rise between 1% and 4%. For the retail/long-term-care area of the business, the Woonsocket, R.I.-based company said that it expects low single-digit growth, with expected low- to mid-single-digit growth in the pharmacy services segment.
Though CVS Health said its enterprise growth would be buoyed by growth in scripts and claims, as well as purchasing efficiency from its Red Oak venture, it is expecting hampered operating profit growth this year as it implements its contract to offer pharmacy benefits management services to Anthem, which starts in 2020. The Anthem contract, along with its recent divestiture of RxCrossroads to McKesson, is expected to bring down operating profit growth by roughly 125 basis points.
The company’s retail/LTC segment is expected to grow revenue by 2.5% to 4% with an expected growth in same-store scripts of 6% to 7%. It attributed the projected script growth to partnerships with PBMS and health plans, as well as its position as a preferred pharmacy in a larger number of Medicare Part D networks than in previous years. Same-store sales are expected to range from 2% to 3.5%.
CVS Health expects its pharmacy services segment to grow its claims by roughly 8%, with revenue increasing 1.5% to 3.5%. The company said that revenue growth would be impeded slightly by administration of rebates for Aetna’s Medicare Part D business, which is set to start in 2018 under an existing contract between the companies. It also expects the continued introduction of specialty generics, low levels of brand inflation and continued pricing pressures.
The company also expects to benefit from the recent tax reform bill, which it said lowers its effective tax rate to roughly 27% this year, which represents increased cash flow of $1.2 billion that it plans to use for strategic investment in growth areas as it continues with the Aetna acquisition.
With regard to the Aetna acquisition, CVS Health said that it would be assuming its close after year-end 2018, despite expecting it to close in the second half of the year. The acquisition is also expected to bring the company new debt and bridge financing fees in 2018, even as it uses cash on hand to retire debt that matures this year.
CVS Health also revised its Q4 2017 outlook, projecting a mid-teens growth rate in the fourth quarter and 4% for the full year in the pharmacy services segment’s adjusted operating profit. A better effective tax rate is expected to offset the impact of the company’s suspended share repurchase plan, but it projects earnings per share to come in on the low range of its projections that range from $1.88 and $1.92.