CVS reports healthy fourth quarter

By Sarah Very

CVS Health Corp. turned in fourth quarter results that matched Wall Street expectations, as recent acquisitions and growth in its retail and pharmacy-services businesses bolstered revenue at the second largest drugstore chain.

In the latest quarter, the Woonsocket, Rhode Island company reported net income of $1.5 billion, or $1.34 per diluted share, up from $1.32 billion, or $1.14 per share, in the final quarter of 2014.

Excluding special items, CVS listed adjusted earnings per share of $1.53, up from an adjusted $1.21 in the year-earlier quarter. Revenues surged to a record $41.15 billion, up 11 percent from $37.06 billion.

In a press release accompanying CVS Health’s annual earnings data, CEO Larry Merlo attributed the company’s performance to “two key acquisitions” that support its growth strategy.

As it continued to bulk up its pharmacy services offerings last summer, CVS spent over $12 billion to acquire Omnicare, a leading pharmaceutical provider to long-term care facilities. The deal gave CVS national exposure to a growing segment of the healthcare system, including assisted living facilities and independent living communities.

CVS also expanded its retail businesses in December with its $1.9 billion purchase and integration of Target Corp.’s pharmacy locations. According to a company press release following the acquisition, Target’s 1,672 pharmacies span 47 states and will increase the primarily East Coast company’s westward reach. The Target pharmacies are slowly being re-branded and CVS pharmacies will be included in all new Target stores that offer pharmacy services. Retail revenues increased 12.5 percent to $19.91 billion in the fourth quarter.

According to a report from Morningstar analyst Vishnu Lekraj, the acquisitions “have allowed CVS to grow its drug purchasing volume and gain scale throughout the entire enterprise.” He believes the firm can use the increased purchasing volume to “procure some of the lowest pricing within the pharmaceutical supply chain.”

The pharmacy services segment also provides pharmacy benefit management (PBM) services, Medicare Part D services, mail order pharmacy, specialty pharmacy, and clinical services, among others. CVS is one of the largest pharmacy benefit management businesses, giving the company significant negotiation advantages when dealing with suppliers.

In the press release, Merlo wrote that PBM had “an outstanding selling season for 2016, with gross client wins of $14.8 billion.” He added that the company’s fast-growing specialty market continues to outpace the industry.

CVS is behind only Walgreens Boots Alliance Inc. in size, which has more than 13,000 locations globally and is in the process of acquiring Rite Aid Corp. CVS currently operates approximately 9,600 retail pharmacies and more than 1,100 walk-in medical clinics.

CVS did not change its previous forecast for 2016 and the first quarter, in which it predicts adjusted earnings per share of $5.73 to $5.88 and GAAP diluted earnings per share from continuing operations of $5.28 to $5.43 in 2016. During the first quarter, it predicts adjusted earnings per share of $1.14 to $1.17 and GAAP diluted earnings of $1.03 to $1.06.

In New York Stock Exchange trading Tuesday, CVS shares closed up 86 cents, or 1 percent, at $90.51.

Photo at top: The CVS pharmacy at 175 W Jackson Blvd. (Sarah Very/MEDILL)
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