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CVS Health tops Q2 forecasts


The nation's second largest drugstore chain by store count posted a higher-than-expected quarterly profit amid stronger demand for its pharmacy benefits management business.

CVS’ net income rose 18.8% to $1.1 billion in the second quarter, ended June 30. Net revenues rose 4.5% to $45.7 billion, with a 9.5% increase in revenue in it pharmacy services segment, which includes its pharmacy benefits manager (PBM) business and specialty pharmacy services.

Net revenues in the company’s retail/LTC segment fell 2.2% to $19.6 billion, amid softer traffic, increased generic dispensing and reimbursement pressure. Same-store sales fell 2.6%.

“The second quarter results we posted today keep us nicely on pace to achieve our full-year targets," said CVS Health president and CEO Larry Merlo said. "Operating profit in the retail/LTC segment was in line with expectations while operating profit in the pharmacy services segment exceeded expectations. While we are pleased to report results consistent with our expectations, we won’t be satisfied until the total enterprise returns to healthy levels of earnings growth.”

Pharmacy same-store sales dropped 2.8% in the quarter, with same-store prescription volumes remaining flat on a 30-day equivalent basis. Front-end same-store sales dropped 2.1%, impacted by softer customer traffics and the company’s efforts to rationalize promotional strategies.

Håkon Helgesen, analyst at GlobalData Retail, commented that the retail side of the CVS operation is a “neglected part” of the company's business and, as a result, performs well under its potential.

"The blunt truth is that, outside of health care needs, many consumers see CVS as a place to buy essentials when nowhere else is convenient," Helgesen said. "Others buy a few products when they come to pick up prescriptions. Relatively few retail shoppers see CVS as a destination in its own right, even for categories like beauty. Given the scale of CVS, which puts its stores in easy reach of most Americans, this is a massive lost opportunity."

During the second quarter, CVS opened 27 new retail stores, relocated 10 stores and closed three. During 2017, the company said it still plans to close roughly 70 retail stores. In the first half of the year, it has closed 63 stores and taken a charge of $205 million.

The company said Tuesday it now expects adjusted earnings of $5.83 to $5.93 per share in 2017, as it raised the lower end of its previous forecast from $5.77 per share.

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