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CVS reports solid third quarter but warns of lower profit

11/8/2016

Strong results in its PBM business provided a boost during CVS Health’s fiscal third quarter, with the retailer reporting a 23.6% increase in net earnings to $1.5 billion.



Revenue increased 15.5% to $6 billion for the period ended Sept. 30.



"We posted a solid third quarter with the PBM exceeding our expectations and retail performing at the lower end of our expectations,” said CVS president and CEO Larry Merlo. “However, very recent pharmacy network changes in the marketplace are expected to cause some retail prescriptions to begin migrating out of our pharmacies this quarter.”



The chain is currently experiencing slowing prescription growth in the overall market as well as a soft seasonal business, Merlo added.



“These factors combined are leading us to reduce the mid-point of our guidance for this year by five cents per share,” he said. “The network changes have more significant implications for our 2017 outlook. While we expect a healthy increase in PBM operating profit growth in 2017, we expect a decrease in retail operating profit growth.”



Front store same-store sales were a culprit regarding retail sales, which decreased 1.0%. According to CVS, this segment of retail was negatively affected by softer customer traffic partially offset by an increase in basket size.



However, acquisitions helped CVS. Revenues in CVS’ Retail/LTC Segment increased 12.5%, or $2.2 billion, to approximately $20.1 billion, in the three months ended Sept. 30. The increase was primarily driven by the addition of the long-term care pharmacy operations acquired as part of the acquisition of Omnicare, the addition of the pharmacies and clinics of Target, and pharmacy same-store sales growth.



Overall, same-store sales increased 2.3% versus third quarter 2015. Pharmacy same-store sales rose 3.4% and pharmacy same-store prescription volumes rose 3.0% on a 30-day equivalent basis.



Looking ahead, CVS lowered and narrowed its full year GAAP diluted earnings-per-share to $4.84 to $4.90 from $4.92 to $5. It also issued a preliminary outlook for 2017, with GAAP diluted earnings-per-share expected to be in the range of $5.16 to $5.33 and adjusted EPS is expected to be in the range of $5.77 to $5.93.



During its 2016 Q3, CVS opened 48 new retail stores and closed six retail stores. In addition, it relocated 11 retail stores. As of Sept. 30, it operated 9,694 retail stores, including pharmacies in Target stores, in 49 states, the District of Columbia, Puerto Rico and Brazil.


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