CVS Health posts Q2 loss amid strong script volume growth
CVS Health has posted its second-quarter results for the three months ended June 30, bringing in revenues of $46.7 billion — an increase of 2.2% over the previous year. Despite being buoyed by same-store prescription growth of 9.5% in the retail/long-term care segment and 5.9% in its pharmacy services segment, the company still swung to a net loss of $2.6 billion, compared with $1.1 billion in net income in the prior-year period. The company 's earnings per share for the quarter, based on generally accepted accounting principles hit a $2.52 loss, compared with $1.07 earnings in the prior-year period with an adjusted EPS of $1.69 — up from $1.33 in the prior-year period.
“Our solid performance both in the quarter and year-to-date demonstrates our ability to drive value. It also builds upon a strong foundation for a seamless integration of CVS and Aetna with one goal: to transform the consumer health care experience and, by doing so, deliver long-term profitable growth for shareholders,” CVS Health president and CEO Larry Merlo said.
CVS Health said the net loss was largely the result of financing related to the Aetna acquisition. CVS Health noted that it also was due to a $3.9 billion consolidated operating loss that included an LTC impairment charge and $39 million in costs related to its proposed acquisition of Aetna.
“The strong revenue, adjusted EPS, gross and operating margins, along with cash flow generated in the quarter were the direct result of our team’s ability to increase prescription growth by expanding relationships with PBMs and health plans as well as our ongoing streamlining efforts and innovation. The genuine enthusiasm and the depth of talent throughout the CVS and Aetna organizations will be key assets as we focus on realizing the potential of our combination,” Merlo said.
Revenues in the retail/LTC segment increased 5.7% to approximately $20.7 billion for the quarter. CVS Health said the increase was primarily due to an increase in same-store prescription volume of 9.5%, on a 30-day equivalent basis, due to continued adoption of Patient Care Programs, alliances with PBMs and health plans, inclusion in a number of additional Medicare Part D networks this year, and brand inflation. This increase was partially offset by continued reimbursement pressure and the impact of recent generic introductions, according to CVS Health.
Same-store sales increased 5.9% and pharmacy same-store sales increased 8.3% in Q2. The increase in pharmacy same-store sales was principally driven by the increase in pharmacy same store prescription volumes described above, partially offset by continued reimbursement pressure and a negative impact of approximately 275 basis points due to recent generic introductions.
Front-store same-store sales declined 1% in the quarter compared to the same quarter of the prior year. The decrease in front-store same-store sales was driven by an unfavorable impact of approximately 90 basis points as a result of the shift of sales associated with the Easter holiday from the second quarter of 2017 to the first quarter of 2018, as well as softer customer traffic, partially offset by an increase in basket size, the company said.
Revenues in the pharmacy services segment increased 2.8% to approximately $33.2 billion in the quarter. CVS Health attributed the increase to growth in pharmacy network and mail choice claim volume as well as brand inflation, partially offset by continued price compression and increased generic dispensing.
CVS Health noted that pharmacy network claims processed during Q2 increased 5.9% on a 30-day equivalent basis to 398.2 million, compared with 376.0 million in the same quarter of the prior year. The increase in pharmacy network claim volume was primarily due to an increase in net new business.
On a 30-day equivalent basis, mail choice claims processed during the quarter increased 9.5% to 71.9 million, compared to 65.6 million in the same quarter of the prior year. The increase in mail choice claim volume was driven by the continued adoption of the company’s Maintenance Choice offerings and an increase in specialty pharmacy claims, the company said.
For the quarter, the generic dispensing rate increased approximately 40 basis points to 87.6% in CVS Health’s pharmacy services segment and increased approximately 45 basis points to 88.1% in its retail/LTC Segment, compared with the same quarter in the prior year.
CVS Health reported that its LTC business has continued to experience challenges that have impacted its ability to grow the business at the rate that was originally estimated when the company acquired Omnicare in 2015.
“These challenges include lower client retention rates, lower occupancy rates in skilled nursing facilities, the deteriorating financial health of numerous skilled nursing facility customers, and continued facility reimbursement pressures,” said CVS Health.
Adjusted operating profit for the quarter was $2.4 billion, an increase of $105 million, or 4.6%, compared with the prior-year period. The increase in adjusted operating profit compared with the prior year was driven by improvement in pharmacy gross profit dollars in the retail/LTC Segment. The increase in pharmacy gross profit dollars was driven by the increased prescription volume, improved purchasing economics and the impact of generic introductions, partially offset by continued reimbursement pressure, CVS Health said.
Adjusted income before tax for Q2 was $2.3 billion, up from the $2.3 billion adjusted income before tax it saw a year ago.
Looking forward, the company said it expects full-year GAAP operating profit to be down 39.25% to 40.75%, from down 0.25% to up 2.75%. CVS Health also revised its full-year GAAP diluted EPS from continuing operations to $1.40 to $1.50, including the goodwill impairment charge, from $5.11 to $5.32.
The company narrowed adjusted operating profit growth to down 0.75% to up 0.75% from down 1.5% to up 1.5% and narrowed and raised the mid-point of the range for full-year adjusted EPS guidance to $6.98 to $7.08 from $6.87 to $7.08.
CVS Health said the previously announced acquisition of Aetna by CVS Health was approved by shareholders of both companies on March 13, and it expects the transaction to close during the third quarter or the early part of the fourth quarter of 2018.