WOONSOCKET – In its first full-quarter filing following the acquisition of Aetna Inc., CVS Health Corp. earned $1.4 billion in the first quarter of 2019, a 43% increase year over year.
Earnings per diluted share were $1.09, compared with 98 cents one year prior. The increase in earnings was attributed in large part to the acquisition of Aetna, offset by “reimbursement pressure and the investment of a portion of the savings from tax reform in wages and benefits in the Retail/LTC segment and continued price compression in the Pharmacy Services segment,” according a press release. Earnings were also offset by higher interest expenses related to the acquisition, which closed in late November.
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The company now expects adjusted earnings per share this year of $6.75 to $6.90, higher than the $6.68 to $6.88 that it had earlier forecast.
CVS shares gained more than 5% in premarket trading on Wednesday. Through Tuesday’s close, the stock had fallen 17% this year amid a widespread decline in shares of insurers and other health care companies.
CVS had warned in February of a transition year, as results would likely be hit by rising costs and poor results from a nursing-home pharmacy unit. Political pressure on pharmacy-benefit managers has been growing as Washington looks to rein in drug prices. CVS’ Caremark is one of the biggest PBMs, and along with rivals it faces a probe by several states of its business practices. The drugstore business has been squeezed by competitive pressure from online retailers and political wrangling over prescription costs, though CVS’ sales in the quarter were better than forecast. Last month, Walgreens warned its profits would be flat this year, hitting that company’s stock hard.
CVS revenue for the quarter totaled $61.6 billion, a 34.8% increase year to year. The company said that revenue growth was also primarily driven by the acquisition of Aetna, as well as increased volume and brand name drug price inflation in both the company’s Pharmacy Services and Retail/LTC segments.
Segment Revenue:
The Pharmacy Services segment reported $33.6 billion in revenue for the quarter, an increase of 3.1% over the year. Operating income fell 5.7% to $850 million. The segment was reported to have processed 481.8 million pharmacy claims in the quarter, a 2.8% year-over-year increase.
The Retail/LTC segment of the company reported $21.1 billion revenue for the quarter, a 3.3% increase year over year. Operating income declined 23.8% year over year to $1.2 billion. Prescriptions filled in the period increased 5.5% to 346.8 million. Same-store sales (sales for outlets open at least a year), increased 3.8% for both segments. Front-of-store sales increased 0.4%, while pharmacy sales increased 4.9% on a same-store basis.
CVS’ Health Care Benefits segment had $17.9 billion in revenue for the quarter and operating income of $1.2 billion. Prior to the acquisition of Aetna, the segment had $1.3 billion in revenue and an operating loss of $138 million in the first quarter of 2018.
Net cash provided by operations fell 17.3% to $1.9 billion over the year. Cash, cash equivalents and restricted cash at the end of the period stood at $6.2 billion, an 85.4% decline from $42.3 billion a year earlier, when the proceeds of debt taken on to fund the acquisition of Aetna swelled CVS’ cash position.
Company takeaway:
“We generated strong first-quarter results, providing positive momentum to start the year. Following the close of our Aetna acquisition in late November, our first full quarter of combined operations was a success in many ways,” said CVS Health President and CEO Larry J. Merlo in prepared remarks. “In the quarter we continued to advance our integration efforts while beginning to launch new innovations such as our HealthHUB concept stores. With our differentiated collection of health care assets we are uniquely positioned to lead the transformation of the U.S. health care system. We remain relentlessly focused on creating value for clients and customers while driving both near- and longer-term returns for our shareholders.”
CVS paid $649 million in dividends in the quarter, compared with $508 in the first quarter of 2018.
The company’s effective tax rate in the first quarter was 26.4%, compared with 32.1% one year prior due to write downs related to the company’s divestiture of RxCrossroads one year prior.
Acquisition review:
Despite the combined reporting of Aetna and CVS, U.S. District Judge Richard J. Leon, who is required to approve the deal before the merger is official under the Tunney Act, has called for testimony from witnesses who object to the U.S. Justice Department’s decision to approve CVS Health’s acquisition of Aetna.
Despite not having the final approval from the federal judge, the companies have declared the acquisition complete.
Leon last said that he expects the testimony to take place in May and last roughly one week.
Chris Bergenheim is the PBN web editor. You may reach him at Bergenheim@PBN.com. Bloomberg News contributed to this article.
