CVS Health Corporation (CVS)

[mick]

CVS Health Reports First Quarter Results
May, 01 2019 06:55 AM | PR Newswire | CVS

https://marketwirenews.com/news-releases/cvs-health-reports-first-quarter-results-8090910.html


First Quarter Year-over-Year Highlights:

Revenues increased 34.8% to $61.6 billion
GAAP operating income increased 34.8% to $2.7 billion
Adjusted operating income increased 56.8% to $3.6 billion
GAAP diluted earnings per share of $1.09
Adjusted EPS (a) of $1.62
Generated cash flow from operations of $1.9 billion
2019 Full Year Guidance:

Revised GAAP operating income guidance range to $11.8 billion to $12.0 billion from $11.7 billion to $12.1 billion
Narrowed and raised the mid-point of the guidance range for adjusted operating income (1) to $15.0 billion to $15.2 billion from $14.8 billion to $15.2 billion
Narrowed GAAP diluted EPS guidance range to $4.90 to $5.05 from $4.88 to $5.08
Raised Adjusted EPS (2) guidance range to $6.75 to $6.90 from $6.68 to $6.88
Confirmed cash flow from operations guidance range of $9.8 billion to $10.3 billion
CVS Health Corporation (NYSE: CVS) today announced operating results for the three months ended March 31, 2019.

President and Chief Executive Officer Larry Merlo stated, "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. 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."

________________________________

(a)

The Company presents both GAAP and non-GAAP financial measures in this press release to assist in the comparison of the Company's past financial performance with its current financial performance. See "Non-GAAP Financial Information" on page 11 and endnotes (1) through (4) on page 23 for explanations of non-GAAP financial measures presented in this press release. See pages 12 through 14 and 21 through 22 for reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measure.

Consolidated First Quarter Results


Three Months Ended


March 31,

In millions, except per share amounts

2019


2018


Change

Revenues

$

61,646


$

45,743


$

15,903

Operating income

2,690


1,996


694

Adjusted operating income (1)

3,595


2,293


1,302

Net income

1,427


998


429

Diluted earnings per share

$

1.09


$

0.98


$

0.11

Adjusted EPS (2)

$

1.62


$

1.48


$

0.14

Enterprise prescriptions (5) (6)

679.8


659.1


20.7









Effective for the first quarter of 2019, the Company realigned the composition of its segments to correspond with changes to its operating model and how the business is managed. As a result of this realignment, the Company's SilverScript® Medicare Part D prescription drug plan ("PDP") moved from the Pharmacy Services segment to the Health Care Benefits segment. In addition, the Company moved the mail order and specialty pharmacy operations of Aetna Inc. ("Aetna"), which it acquired on November 28, 2018 (the "Aetna Acquisition"), from the Health Care Benefits segment to the Pharmacy Services segment. Prior period segment financial information has been retrospectively adjusted to conform with the current period presentation.
Revenues and adjusted revenues (3) increased 34.8% and 34.9%, respectively, for the three months ended March 31, 2019 compared to the prior year. Revenue growth was primarily driven by the Aetna Acquisition, as well as increased volume and brand name drug price inflation in both the Pharmacy Services and Retail/LTC segments. The increase was partially offset by continued price compression in the Pharmacy Services segment, reimbursement pressure in the Retail/LTC segment and an increased generic dispensing rate.
Operating expenses and adjusted operating expenses (4) increased 67.9% and 60.6%, respectively, for the three months ended March 31, 2019 compared to the prior year. The increase in both operating expenses and adjusted operating expenses was primarily driven by the impact of the Aetna Acquisition. The increase in operating expenses was also due to an increase in intangible amortization related to the Aetna Acquisition, a $135 million store rationalization charge recorded during the first quarter of 2019 primarily related to operating lease right-of-use asset impairment charges in connection with the planned closure of 46 underperforming retail pharmacy stores in the second quarter of 2019, and an increase in acquisition-related integration costs. The increase in operating expenses was partially offset by the absence of the $86 million pre-tax loss associated with the divestiture of the Company's RxCrossroads subsidiary recorded in the three months ended March 31, 2018.
Operating income and adjusted operating income increased 34.8% and 56.8%, respectively, for the three months ended March 31, 2019 compared to the prior year. The increase in both operating income and adjusted operating income was primarily due to the Aetna Acquisition, partially 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. The increase in operating income was also partially offset by the other increases in operating expenses described above.
Net income increased 43.0% for the three months ended March 31, 2019 compared to the prior year primarily due to higher operating income described above, partially offset by higher interest expense primarily due to financing activity associated with the Aetna Acquisition.
The effective income tax rate was 26.4% for the three months ended March 31, 2019 compared to 32.1% for the three months ended March 31, 2018. The decrease in the effective income tax rate compared to the prior year was primarily due to the impact of the non-deductible goodwill included in the loss associated with the divestiture of the Company's RxCrossroads subsidiary during the three months ended March 31, 2018.
Pharmacy Services Segment

The Pharmacy Services segment provides a full range of pharmacy benefit management services to employers, health plans, government employee groups and government sponsored programs. The segment results for the three months ended March 31, 2019 and 2018 were as follows:


Three Months Ended


March 31,

In millions

2019


2018


Change

Total revenues

$

33,558


$

32,546


$

1,012

Operating income

850


901


(51)

Adjusted operating income (1)

947


987


(40)

Total pharmacy claims processed (6)

481.8


468.8


13.0

Pharmacy network

407.7


399.5


8.2

Mail choice

74.1


69.3


4.8









Total revenues increased 3.1% for the three months ended March 31, 2019 compared to the prior year primarily due to brand name drug price inflation as well as increased total pharmacy claims volume, partially offset by continued price compression and an increased generic dispensing rate.
Total pharmacy claims processed increased 2.8% on a 30-day equivalent basis, for the three months ended March 31, 2019 compared to the prior year primarily driven by net new business and the continued adoption of Maintenance Choice® offerings.
Operating income and adjusted operating income decreased 5.7% and 4.2%, respectively, for the three months ended March 31, 2019 compared to the prior year primarily driven by continued price compression and investments related to the Company's agreement with Anthem Inc. during the three months ended March 31, 2019. The decrease in operating income also was due to increased intangible amortization related to Aetna's mail order and specialty pharmacy operations.
See the supplemental information on page 17 for additional information regarding the performance of the Pharmacy Services segment.

Retail/LTC Segment

The Retail/LTC segment fulfills prescriptions for medications, provides patient care programs, sells a wide-assortment of general merchandise, provides health care services through walk-in clinics and provides services to long-term care facilities. The segment results for the three months ended March 31, 2019 and 2018 were as follows:


Three Months Ended


March 31,

In millions

2019


2018


Change

Total revenues

$

21,115


$

20,432


$

683

Operating income

1,238


1,624


(386)

Adjusted operating income (1)

1,489


1,836


(347)

Prescriptions filled (6)

346.8


328.8


18.0









Total revenues increased 3.3% for the three months ended March 31, 2019 compared to the prior year. The increase was primarily driven by increased prescription volume and brand name drug price inflation, partially offset by continued reimbursement pressure and the impact of generic drug introductions.
Front store revenues represent approximately 22.7% of total Retail/LTC segment revenues. Front store revenues increased in the three months ended March 31, 2019 compared to the prior year primarily driven by increases in health product sales.
Total prescription volume grew 5.5%, on a 30-day equivalent basis, for the three months ended March 31, 2019 compared to the prior year. The growth was driven mainly by the continued adoption of patient care programs, collaborations with PBMs and the Company's preferred status in a number of Medicare Part D networks.
Operating income and adjusted operating income decreased 23.8% and 18.9%, respectively, for the three months ended March 31, 2019. The decrease in both operating income and adjusted operating income was primarily due to (i) continued reimbursement pressure, (ii) increased operating expenses primarily driven by the investment of a portion of the savings from tax reform in wages and benefits and higher legal costs and (iii) declining year-over-year performance in our long-term care business. The decrease in operating income also was driven by the $135 million store rationalization charge recorded during the first quarter of 2019 described above, partially offset by the absence of the $86 million pre-tax loss associated with the divestiture of the Company's RxCrossroads subsidiary recorded in the three months ended March 31, 2018.
See the supplemental information on page 18 for additional information regarding the performance of the Retail/LTC segment.

Health Care Benefits Segment

The Health Care Benefits segment provides a full range of insured and self-insured ("ASC") medical, pharmacy, dental and behavioral health products and services. For periods prior to the Aetna Acquisition (which occurred on November 28, 2018), the Health Care Benefits segment consisted solely of the Company's SilverScript PDP business. The segment results for the three months ended March 31, 2019 and 2018 were as follows:


Three Months Ended


March 31,

In millions, except percentages

2019


2018


Change

Total revenues

$

17,870



$

1,318


$

16,552

Operating income (loss)

1,155



(138)


1,293

Adjusted operating income (loss) (1)

1,562



(137)


1,699

Medical benefit ratio ("MBR") (a)

84.0

%


NM



Medical membership as of March 31, 2019

22.8