CVS profit declines but still beats Street

CVS Health Corp. reported lower profit in its first quarter amid pressure by more generic drugs and softer customer traffic.



Net income for the three months ended March 31 decreased 16.9% year over year to $953 million. CVS said the decline was primarily driven by the decline in operating profit, partially offset by a lower interest expense of $31 million related to refinancing activity in the prior year, as well as the improvement in the effective income tax rate, from 39.4% to 37.3%.



Net revenues rose 3% to $44.5 billion, up from $43.2 billion in the year-ago period. Revenues in the retail/LTC segment decreased 3.8% to $19.3 billion amid reimbursement pressure. The decrease was largely driven by a 4.7% decline in same-store sales, continued reimbursement pressure and an increase in generics.



Pharmacy same-store sales decreased 4.7% and were negatively impacted by approximately 480 basis points due to recent generic introductions. Same-store prescription volumes declined 1.4%. Front store same-store sales declined 4.9%.



Revenues in CVS’ pharmacy services segment were robust, increasing 8.5% to $31.2 billion. This increase was primarily driven by growth in pharmacy network claim volume as well as brand inflation and growth in specialty pharmacy, partially offset by increased generic dispensing and price compression.



“2017 is off to a solid start as we posted results this quarter that surpassed our expectations,” said president and CEO Larry Merlo. “At the same time, we generated $3.1 billion of free cash and continued to return value to our shareholders through high-return investments in our business as well as dividends and share repurchases. However, while we are pleased with our financial performance versus our expectations, we won’t be satisfied until the company returns to sustainable, healthy earnings growth.”



During the first quarter, CVS opened 27 stores and closed 60 stores. In addition, it relocated 10 retail stores. As of March 31, the company operated 9,676 retail stores, including pharmacies in Target stores, in 49 states, the District of Columbia, Puerto Rico and Brazil.



As previously announced, CVS intends to close a total of approximately 70 retail stores during 2017 and expects to take a cumulative charge of approximately $220 million primarily associated with the remaining lease obligations of such stores.