CVS beats estimates as pharmacy management business expands

CVS HEALTH saw net income climb 8.1 percent in the first quarter to $1.2 billion on the strength of growth in its pharmacy benefits management business.
CVS HEALTH saw net income climb 8.1 percent in the first quarter to $1.2 billion on the strength of growth in its pharmacy benefits management business.

WOONSOCKET – CVS Health Corp., the biggest U.S. retailer of prescription drugs, beat analysts’ estimates as revenue in its pharmacy benefits management business rose 18.2 percent.

First-quarter earnings totaled $1.2 billion, or $1.07 per diluted share. Net income in the first quarter of 2014 was $1.1 billion.

Net revenue rose 11.1 percent to $36.3 billion, the company said Friday in a statement. Analysts had predicted $35.9 billion.

CVS is the nation’s second-largest pharmacy benefits manager, handling drug plans for health insurers and employers. The business, which reported $23.9 billion in sales, has given the company a faster source of growth than its retail division, at which sales increased 2.9 percent to $17 billion.

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Free cash flow, a measure the company defines as net cash provided by operating activities less net additions to properties and equipment, fell 11.1 percent to $1.6 billion.

Same-store sales increased 4.2 percent over the 2014 first quarter, with pharmacy sales increasing 4.2 percent on a same-store basis and front-of-the-store sales declining 6.1 percent for the period.

CVS narrowed its 2015 adjusted earnings projection to $5.08 to $5.19 a share, from a range of $5.05 to $5.19.

President and CEO Larry J. Merlo said in a statement that “we delivered better-than-expected results this quarter, primarily driven by stronger-than-expected prescription volumes as well as favorable purchasing and rebate economics in the [pharmacy benefits management business]. … Our integrated model allows us to provide differentiated products and services that generate savings for our clients while providing better health outcomes and convenience for patients.”

Shares of CVS rose less than 1 percent to $100.04 at 9:52 a.m. on the New York Stock Exchange. Through Thursday, the shares had climbed 37 percent in the past year.

The pharmacy benefit management market is growing more competitive. In March, UnitedHealth Group Inc. agreed to buy Catamaran Corp. in a $12.8 billion deal that will create a large third-place competitor. And in February, drugstore chain Rite Aid Corp. agreed to buy pharmacy benefits manager EnvisionRx for about $2 billion. Express Scripts Holding Co. is the industry leader.

The landscape for retail drugstores has been changing as competition from online retailers presents new challenges. Rite-Aid remodeled 115 stores in its fourth quarter while rival Walgreens Boots Alliance Inc. said in April that it was closing 200 of its about 8,000 U.S. drugstores to cut costs.

CVS has been making changes of its own, and last year stopped selling cigarettes. The Woonsocket-based company previously generated $2 billion in annual tobacco sales.

Bloomberg News contributed to this report.

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