CVS Health beats estimates with strong Q1

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CVS Health beats estimates with strong Q1

By David Salazar - 05/01/2019
CVS Health’s first quarter 2019 results brought increased revenue and earnings per share, as well as a realignment of certain areas of the business. As part of its Aetna integration, the company said it would be moving its SilverScript Medicare Part D prescription drug plan into its health care benefits segment from the pharmacy services segment. Mail-order and specialty pharmacy services it acquired with Aetna have been moved to the pharmacy services segment.

For the quarter, CVS Health saw a 34.8% increase in revenue, which totaled $61.6 billion and adjusted earnings per share of $1.62. Operating income increased 34.8% as well, totaling $3.6 billion. However, earnings and income weren’t the only items increasing. The company noted a 67.9% increase in operating expenses over the previous period, which it said largely was due to the impact of the Aetna acquisition.

“We generated strong first quarter results, providing positive momentum to start the year. Following the close of our Aetna acquisition in late November, our first full quarter of combined operations was a success in many ways,” CVS Health president and CEO Larry Merlo said. “In the quarter we continued to advance our integration efforts while beginning to launch new innovations such as our HealthHub concept stores.”

CVS Health’s retail/long-term care segment saw revenues increase 3.3% for the quarter, which it primarily attributed to an uptick in prescription volume and branded drug price inflation, both of which were offset by reimbursement pressure and generic introductions. Operating income decreased 23.8%, which the company said was due to reimbursement pressure, declining year-over-year long-term care business and growing operating expenses going to benefits and wages, as well as legal fees. The segment’s front-end revenue made up 22.7% of revenues, a slight increase driven by an increase in health product sales. Total prescription volume was up 5.5% on a 30-day equivalent basis for the quarter.

The company said it is planning to close 46 underperforming stores in the second quarter, but Merlo and CVS Pharmacy president Kevin Hourican told analysts that the company is examining ways to scale the HealthHub concept store outside of the Houston market where it is being piloted. Merlo said the response has been positive, and Hourican noted that the HealthHub pilot is succeeding in “creating a compelling place to shop” by offering expanded MinuteClinic services, expanded pharmacy services, a larger health-and-wellness assortment and an in-store Care Concierge.

CVS Health’s pharmacy services segment saw revenues increase 3.1% over the prior year, which it said was due to continued adoption of CVS Caremark’s Maintenance Choice offerings. The segment saw operating income decrease 5.7%, attributed to price compression and investments in CVS Health’s agreement with Anthem, as well as intangible amortization related to Aetna’s mail-order and specialty pharmacy operations.

The company’s health care benefits segment posted a $16.6 billion increase in revenue driven by the Aetna acquisition, which also drove a $1.3 billion increase in operating income. Medical membership also increased, which CVS Health said was a combination of Medicare, Medicaid and Commercial ASC offerings, which were offset by declines in commercially insured patients.

CVS Health revised its fiscal 2019 guidance, which it now expects to have operating income between $11.7 billion and $12.1 billion, compared with its prior range of $11.8 billion to $12 billion. It narrowed its EPS guidance to between $4.90 and $5.05 from between $4.88 and $5.08.

“With our differentiated collection of health care assets we are uniquely positioned to lead the transformation of the U.S. health care system,” Merlos said. “We remain relentlessly focused on creating value for clients and customers while driving both near and longer-term returns for our shareholders.”