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CVS Health adjusted earnings for Q2 exceed analyst estimates


CVS Health on Tuesday reported an increase of 17.6% in net revenues for the three months ended June 30, 2016, to $43.7 billion. Revenues in the Pharmacy Services Segment increased 20.7% to $29.5 billion in the three months ended June 30, 2016, which CVS Health attributed to an increased pharmacy network claim volume and growth in specialty pharmacy.

"I'm very pleased with our solid second quarter results across the enterprise," stated Larry Merlo, president and CEO CVS Health. "Operating profit in the Retail/LTC Segment was in line with expectations while operating profit in the Pharmacy Services Segment exceeded expectations. 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."

Merlo announced CVS Health is raising and narrowing its Adjusted EPS guidance and also raising its free cash flow guidance for 2016. "With our differentiated value proposition, we see 2017 shaping up to be another very successful PBM selling season, with substantial gross and net new business to date," he said.

Adjusted earnings per share for the three months ended June 30, 2016 was $1.32, exceeding Wall Street expectations. The average estimate of 23 analysts surveyed by Zacks Investment Research was for earnings of $1.30 per share. However, CVS Health's revenues of $43.7 billion missed the Zacks Consensus Estimate for revenues of $44.2 billion, Zacks reported.

"Following the earnings release, share prices did not show any significant movement in the pre-market trading session,"Zacks reported.

Revenues in the Retail/LTC Segment increased 16% to approximately $20 billion for the quarter. The increase was primarily driven by the addition of the long-term care pharmacy operations acquired as part of the acquisition of Omnicare in August 2015, the addition of the pharmacies and clinics of Target Corporation acquired in December 2015 and pharmacy same-store sales growth.

Same-store sales increased 2.1% versus the second quarter of 2015. Pharmacy same-store sales rose 3.9% and pharmacy same-store prescription volumes rose 3.5% on a 30-day equivalent basis. Pharmacy same-store sales were negatively affected by approximately 355 basis points from recent generic drug introductions. Front store same-store sales decreased 2.5%, including the effect of the shift of Easter from April in 2015 to March in 2016, which resulted in a decrease in front store same-store sales of approximately 80 basis points. Front store same-store sales were also negatively affected by softer customer traffic, partially offset by an increase in basket size.

Pharmacy network claims processed during quarter increased 22.6% to 280.5 million, compared to 228.8 million in the prior year, representing primarily net new business. Mail choice claims processed during the quarter increased 3.9% to 22.2 million. The increase in mail choice claims was primarily driven by the continued adoption of our Maintenance Choice offerings.

For the three months ended June 30, 2016, the generic dispensing rate increased approximately 155 basis points to 85.4% in the Pharmacy Services Segment and increased approximately 110 basis points to 86.1% in the Retail/LTC Segment.

For the three months ended June 30, 2016, consolidated operating profit increased $88 million, or 3.9%. Excluding acquisition-related integration costs of $81 million in 2016 and acquisition-related transaction costs of $21 million in 2015, consolidated operating profit increased 6.5% to $2.4 billion for the quarter.

Second quarter operating profits increased by 10.4% in the Pharmacy Services Segment and by 1.4% in the Retail/LTC Segment.

Excluding acquisition-related integration costs of $81 million, the Retail/LTC Segment operating profit grew $105 million, or 6.2%, from $1.7 billion for the three months ended June 30, 2015 to $1.8 billion for the three months ended June 30, 2016.

CVS Health raised and narrowed full year Adjusted EPS to $5.81 to $5.89 from $5.73 to $5.88, which excludes the loss on early extinguishment of debt and acquisition-related integration costs.

CVS Health now expects to deliver cash flow from operations of $8.8 billion to $9.1 billion, up from $7.6 billion to $7.9 billion, and 2016 free cash flow of $6.3 billion to $6.6 billion, up from $5.3 billion to $5.6 billion.

During the three months ended June 30, 2016, CVS Health opened 20 new retail stores, two onsite pharmacies and closed 10 retail stores. In addition, the company relocated nine retail stores. As of June 30, 2016, the Company operated 9,652 retail stores, including pharmacies in Target stores, in 49 states, the District of Columbia, Puerto Rico and Brazil.

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