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WOONSOCKET, R.I. — CVS Health reported strong sales gains and topped Wall Street’s consensus earnings forecast for the 2016 first quarter.
CVS said Tuesday that for the three months ended March 31, overall revenue climbed 18.9% to $43.2 billion from $36.3 billion a year earlier.
Sales in the Retail/LTC Segment, which includes CVS Pharmacy drug stores and the Omnicare long-term care business, rose 18.6% to $20.1 billion. The company attributed the increase mainly to the addition of Omnicare’s LTC operations, acquired last August, and the more than 1,600 pharmacies and clinics acquired Target Corp. in December, as well as comparable pharmacy sales growth.
Same-store sales for the first quarter were up 4.2% year over year, reflecting gains of 0.7% in the front end and 5.5% in the pharmacy and a positive impact of 125 basis points because of the additional day from leap year.
CVS said front-end same-store sales were negatively impacted by softer customer traffic, partially offset by growth in basket size and the shift of Easter from April in 2015 to March in 2016, which lifted same-store sales in the front of the store by about 80 basis points. Front-end comparable-store sales also were positively impacted by 105 basis points from the additional day from leap year.
Comparable pharmacy sales were negatively affected by about 360 basis points from recent generic drug introductions and positively impacted by 130 basis points from the additional day related to leap year. Prescription count for the quarter grew 5.9% on a 30-day equivalent basis.
In the Pharmacy Services Segment, first-quarter revenue increased 20.5% to $28.8 billion, fueled primarily by pharmacy network claim volume and growth in specialty pharmacy, according to CVS.
The company said the generic dispensing rate increased 170 basis points to 85.2% in the Pharmacy Services Segment and rose 125 basis points to 85.7% in the Retail/LTC Segment.
“We posted solid results this quarter and are off to a strong start in 2016. Operating profit in the retail business was in line with our expectations, while operating profit in the PBM exceeded our expectations, driven by strong prescription volumes. We also generated $1.8 billion of free cash during the quarter and continued to return value to our shareholders through high-return investments in our business as well as dividends and share repurchases,” CVS Health president and chief executive officer Larry Merlo said in a statement.
“Our contract wins have grown for the 2016 PBM selling season, and our 2017 season is off to a solid start with some early wins,” Merlo added. “Our distinctive, channel-agnostic solutions are resonating strongly in the market as they continue to control patient and client costs while improving health outcomes. We continue to believe we have the right strategy for success in the evolving health care marketplace.”
First-quarter net earnings, on a GAAP basis, came in at $1.14 billion, or $1.04 per diluted share, compared with $1.22 billion, or $1.07 per diluted share, a year earlier. CVS said the decline stems mainly from an increase in interest expense of $149 million and $61 million of acquisition-related integration costs, partially offset by a rise in operating profit. The increase in interest expense is primarily due to the issuance of $15 billion of long-term debt in July 2015 used to acquire Omnicare and the pharmacies and clinics of Target, as well as the debt assumed through the acquisition of Omnicare, CVS reported.
Adjusted earnings totaled $1.3 billion, or $1.18 per share, in the 2016 first quarter compared with $1.29 billion, or $1.14 per share, a year ago. CVS said adjusted earnings per share (EPS) excludes $199 million and $129 million of intangible asset amortization for both quarters. Adjusted EPS for 2016 quarter also excludes $61 million of acquisition-related integration costs and a $3 million legal charge.
Analysts, on average, had forecast CVS’ adjusted EPS at $1.16 for the quarter, with estimates ranging from a low of $1.14 to a high of $1.18, according to Thomson Financial.
Looking ahead, CVS confirmed its adjusted EPS guidance of $5.73 to $5.88 for the 2016 fiscal year. The company revised its GAAP diluted EPS projection to $5.24 to $5.39 from a range of $5.28 to $5.43 to reflect the impact in the first quarter of acquisition-related integration costs and a charge related to a disputed 1999 legal settlement.
CVS added that for the second quart of 2016, it expects adjusted EPS of $1.28 to $1.31 and GAAP diluted EPS of $1.17 to $1.20.
As of March 31, CVS operated 9,674 retail stores, including pharmacies in Target stores, in 49 states, the District of Columbia, Puerto Rico and Brazil. CVS said it opened 24 new retail stores, closed five stores and relocated 14 stores during the first quarter.
“The first quarter came in better than expected, and second-quarter guidance was softer than Street estimates, as 2016 is still expected to be back-end loaded. Retail/LTC was in-line with management expectations, and the PBM outperformed. This was a solid start to the year,” Jeffries analyst Mark Wiltamuth wrote in a research note. “With a late 2016 selling season win added, first-quarter upside, continued power from specialty pharmacy and the CVS Health PBM/Retail model humming, we like both the near-term and long-term outlook.”*Editor’s Note: Article updated with analyst comment.
