CVS Health Q2 sees slight decline in retail sales, exceeds CVS Caremark expectations
WOONSOCKET, R.I. — CVS Health has reported its second quarter results, reporting $45.7 billion in net revenues — a 4.5% for the quarter ended June 30, driven largely by strong business in it pharmacy services segment, which includes its mail-order and specialty pharmacy services under its CVS Caremark pharmacy benefits manager. The company’s retail/long-term care segment performed in-line with its expectations.
“The second quarter results we posted today keep us nicely on pace to achieve our full-year targets. Operating profit in the retail/LTC segment was in line with expectations while operating profit in the pharmacy services segment exceeded expectations,” CVS Health president and CEO Larry Merlo said. “At the same time, we have generated substantial free cash flow year-to-date and continued to return significant value to our shareholders through dividends and share repurchases. While we are pleased to report results consistent with our expectations, we won’t be satisfied until the total enterprise returns to healthy levels of earnings growth.”
Net revenues in the company’s retail/LTC segment hit $19.6 billion in Q2 — a decrease of 2.2% over the same quarter last year. The company attributes the revenue decline to a 2.6% decrease in comparable-store sales, increased generic dispensing and reimbursement pressure.
Pharmacy same-store sales dropped 2.8% and saw a 410 basis point impact of new generic introductions, with same-store prescription volumes remaining flat on a 30-day equivalent basis. CVS Health said that exclusion from restricted networks had an impact of 460 basis point son same-store script volumes. The pharmacy/LTC segment’s generic dispensing rate increased 130 basis points to 87.2%
In the front of the store, same-store sales dropped 2.1%, reflecting a positive impact of 75 basis points attributable to the Easter holiday taking place during Q2. Same-store sales also saw the impact of softer customer traffics and the company’s efforts to rationalize promotional strategies, though this was offset by an increase in basket size.
CVS Health’s pharmacy services segment saw revenue increase 9.5% in Q2, bringing in $32.3 billion. The company said the rise in revenue was driven by network claim volume, brand inflation and specialty pharmacy volume, and offset slightly by increased generic dispensing and price compression. The segment’s pharmacy network claims increased 10.3% on a 30-day equivalent basis to 376 million, which the company attributed to net new business. Mail choice claims increased 5.2% on a 30-day equivalent basis, driven by the adoption of the company’s Maintenance Choice offerings and an increase in specialty pharmacy claims.
CVS health also reported a 10.2% decrease in its operating profit, offset by pharmacy network claim volume growth and specialty pharmacy growth in its pharmacy services segment, as well as a $71 million decrease in acquisition-related integration costs. The company narrowed and revised its full-year GAAP diluted earnings-per-share guidance to $4.92 to $5.02, and modified its adjusted EPS guidance to $5.83 to $5.93.
During Q2, CVs Health opened 27 new retail locations and closed three, relocating 10 locations. During 2017, the company said it still plans to close roughly 70 retail stores. In the first half of the year, it has closed 63 stores and taken a charge of $205 million.
“Given our performance in the first half and our confidence in our expectations for the back half of this year, we are narrowing and raising the midpoint of our Adjusted EPS guidance for 2017,” Merlo said. “Additionally, our differentiated value proposition continues to resonate in the marketplace. The 2018 selling season is shaping up to be another successful one for our PBM, with solid gross and net new business achieved to date.”