CVS Health reports $2.6B Q2 loss, dragged down by $3.9B goodwill impairment charge

CVS HEALTH reported a $2.6 billion loss in the second quarter of 2018, largely due to a $3.9 billion pre-tax goodwill impairment charge for its long-term care segment. / BLOOMBERG NEWS FILE PHOTO/CHRISTOPHER LEE
CVS HEALTH reported a $2.6 billion loss in the second quarter of 2018, largely due to a $3.9 billion pre-tax goodwill impairment charge for its long-term care segment. / BLOOMBERG NEWS FILE PHOTO/CHRISTOPHER LEE

WOONSOCKET – CVS Health Corp. reported a $2.6 billion loss on Wednesday for the second quarter of 2018, or $2.52 per diluted share. The company had reported a $1.1 billion profit in the second quarter of 2017, or $1.07 per diluted share.

Revenue for the retail pharmacy, health care provider and pharmacy benefit manager in the quarter was $46.7 billion, a 2.2 percent increase from the same period a year ago.

The decline in quarterly profit was largely attributable to a pre-tax goodwill impairment charge of $3.9 billion for the company’s long-term care pharmacy services unit and $39 million related to the company’s proposed merger with Aetna Inc.

The goodwill impairment charges relate to the company’s acquisition of Omnicare Inc. in 2015, which had not performed as well as CVS had expected it to. The LTC pharmacy services segment submitted its 2019 budget in June and updated its 2019 annual forecast, reflecting a deterioration of financial results for the remainder of 2018 and into 2019.

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The segment distributes prescription drugs and provides related pharmacy consulting and other ancillary services to chronic-care facilities and other care settings.

The company said the LTC segment faced challenges such as lower client retention rates, lower occupancy rates in skilled nursing facilities, the deteriorating financial health of numerous skilled-nursing facility customers and continued facility reimbursement pressures.

The company also noted that a significant portion of the segment’s revenue from sales of pharmaceuticals and medical products for the segment are reimbursed by the federal Medicare Part D program, and to a lesser extent, state Medicaid programs.

Related to the Aetna acquisition, the company reported it has made progress with acceptance of the merger in several states and expects the deal to close in the third quarter of 2018 or the early fourth quarter of 2018.

Consolidated revenue for the pharmacy services and retail/LTC segments both increased year over year, despite both segments seeing a decline in operating profit.

Despite the loss for the quarter, CVS President and CEO Larry J. Merlo appeared confident in the quarterly results. “Our solid performance both in the quarter and year-to-date demonstrates our ability to drive value. It also builds upon a strong foundation for a seamless integration of CVS and Aetna with one goal: to transform the consumer health care experience and, by doing so, deliver long-term profitable growth for shareholders,” he said.

Bloomberg News reported Tuesday that sources familiar with the merger said that the Aetna deal was not likely to receive the same scrutiny that the AT&T and Time Warner merger received.

“The strong revenue, adjusted EPS, gross and operating margins, along with cash flow generated in the quarter, were the direct result of our team’s ability to increase prescription growth by expanding relationships with PBMs and health plans as well as our ongoing streamlining efforts and innovation,” added Merlo. “The genuine enthusiasm and the depth of talent throughout the CVS and Aetna organizations will be key assets as we focus on realizing the potential of our combination.”

The company reported that as of June 30, it operated 9,880 retail stores (1,702 of those were pharmacies located within Target stores) in 49 states, the District of Columbia, Puerto Rico and Brazil. CVS also said that it was operating 1,112 retail health care clinics under the MinuteClinic brand name.

Chris Bergenheim is the PBN web editor.