Script volume growth helps boost CVS Health in Q1
CVS Health has posted solid earnings for its first quarter and affirmed its 2018 guidance as the close of its acquisition of Aetna comes into sight. The company posted net revenues of $45.7 billion for the three months ended March 31, an increase of 2.6% over the previous year. Operating profit grew 8.5% to $1.9 billion. The company posted earnings per share of $0.98.
“We generated solid results in the quarter, benefiting from higher prescription volumes within our retail pharmacy business and a lower effective income tax rate,” president and CEO Larry Merlo said.
Same-store prescription volume growth in the company’s retail/long-term care segment grew 8.5% year-over-year, driving a 5.6% increase in segment revenues, which totaled $20.4 billion for the quarter. The company said script growth was due to partnerships with health plans and pharmacy benefits managers, inclusion in Medicare Part D plans and brand price inflation. Same-store sales grew 5.8% and pharmacy same-store sales increased 7.3% in the quarter. CVS Health noted that the growth in same-store pharmacy sales was offset by a 280-basis point impact of recent generic introductions. The segment’s generic dispensing rate increased 60 basis points to 88.1% for the segment.
Front-store sales increased 1.6% for the quarter over the year-ago period. The company attributed this to a 90-basis point shift due to Easter falling in Q2 this year. Additionally, a long flu season saw cough-cold merchandise add 70 basis points of favorability this year, though this was offset by soft foot traffic.
The company’s pharmacy services segment saw revenue increase 3.2% to $32.2 billion, which it largely attributed to increased pharmacy network and specialty claim volume, as well as brand inflation. These gains were offset by increased generic dispensing — which grew 65 basis points to 87.6% in the quarter — and price compression. During the quarter, the company processed 399.5 million pharmacy network claims on a 30-day equivalent basis — an increase of 6%. Mail claims increased 8.9% on a 30-day equivalent basis, totaling 69.3 million, compared tih 63.7 million in the prior-year period.
CVS Health said its operating profit increase was driven by a $199 million decrease in costs related to store rationalization, offset by the $86 million loss attributable to divesting its RxCrossroads subsidiary and a $28 million increase in acquisition-related transaction and integration costs. The majority of growth in operating profit, the company said, is due to gross profit dollar growth in the retail/LTC segment, particularly in the pharmacy.
“We continue to focus on long-term growth initiatives and to invest in process improvements and technology enhancements that will position us well to expand our reach in providing access to high-quality and more affordable care,” Merlo said.
Looking forward, the company said it expects full-year GAAP operating profit growth of between 0.25% and 2.75%, with an expected consolidated operating profit growth of between -1.5% and 1.5%. It projected diluted EPS of between $5.11 and $5.32 and adjusted EPS of between $6.87 and $7.08 for the full-year 2018.
CVS Health expects its Aetna acquisition to close in the second half of the year.
“Looking forward, the Aetna transaction will provide us the means to further lower health care costs for consumers and payers. In March, the transaction was approved by shareholders of both companies,” Merlo said. “We are moving forward on both the regulatory and integration planning fronts in support of a close in the second half of this year and a smooth, efficient integration of operations.”
“We generated solid results in the quarter, benefiting from higher prescription volumes within our retail pharmacy business and a lower effective income tax rate,” president and CEO Larry Merlo said.
Same-store prescription volume growth in the company’s retail/long-term care segment grew 8.5% year-over-year, driving a 5.6% increase in segment revenues, which totaled $20.4 billion for the quarter. The company said script growth was due to partnerships with health plans and pharmacy benefits managers, inclusion in Medicare Part D plans and brand price inflation. Same-store sales grew 5.8% and pharmacy same-store sales increased 7.3% in the quarter. CVS Health noted that the growth in same-store pharmacy sales was offset by a 280-basis point impact of recent generic introductions. The segment’s generic dispensing rate increased 60 basis points to 88.1% for the segment.
Front-store sales increased 1.6% for the quarter over the year-ago period. The company attributed this to a 90-basis point shift due to Easter falling in Q2 this year. Additionally, a long flu season saw cough-cold merchandise add 70 basis points of favorability this year, though this was offset by soft foot traffic.
The company’s pharmacy services segment saw revenue increase 3.2% to $32.2 billion, which it largely attributed to increased pharmacy network and specialty claim volume, as well as brand inflation. These gains were offset by increased generic dispensing — which grew 65 basis points to 87.6% in the quarter — and price compression. During the quarter, the company processed 399.5 million pharmacy network claims on a 30-day equivalent basis — an increase of 6%. Mail claims increased 8.9% on a 30-day equivalent basis, totaling 69.3 million, compared tih 63.7 million in the prior-year period.
CVS Health said its operating profit increase was driven by a $199 million decrease in costs related to store rationalization, offset by the $86 million loss attributable to divesting its RxCrossroads subsidiary and a $28 million increase in acquisition-related transaction and integration costs. The majority of growth in operating profit, the company said, is due to gross profit dollar growth in the retail/LTC segment, particularly in the pharmacy.
“We continue to focus on long-term growth initiatives and to invest in process improvements and technology enhancements that will position us well to expand our reach in providing access to high-quality and more affordable care,” Merlo said.
Looking forward, the company said it expects full-year GAAP operating profit growth of between 0.25% and 2.75%, with an expected consolidated operating profit growth of between -1.5% and 1.5%. It projected diluted EPS of between $5.11 and $5.32 and adjusted EPS of between $6.87 and $7.08 for the full-year 2018.
CVS Health expects its Aetna acquisition to close in the second half of the year.
“Looking forward, the Aetna transaction will provide us the means to further lower health care costs for consumers and payers. In March, the transaction was approved by shareholders of both companies,” Merlo said. “We are moving forward on both the regulatory and integration planning fronts in support of a close in the second half of this year and a smooth, efficient integration of operations.”