CVS Health Reports 2019 Second Quarter Results

2019 EPS Guidance Raised And Narrowed To Reflect Strong Performance Year-to-Date

WOONSOCKET, R.I., Aug. 7, 2019 /PRNewswire/ --

Second Quarter Year-over-Year Highlights:

• Revenues increased 35.2% to $63.4 billion
• GAAP operating income increased to $3.3 billion
• Adjusted operating income ⁽¹⁾ increased 55.1% to $4.0 billion
• GAAP diluted earnings per share from continuing operations of $1.49
• Adjusted EPS ⁽²⁾ of $1.89

Year-to-date Highlights:

• Generated cash flow from operations of $7.3 billion

2019 Full Year Guidance:

• Confirmed GAAP operating income guidance range of $11.8 billion to $12.0 billion
• Raised the guidance range for adjusted operating income ⁽¹⁾ to $15.2 billion to $15.4 billion from $15.0 billion to $15.2 billion
• Raised and narrowed GAAP diluted EPS from continuing operations guidance range to $4.93 to $5.04 from $4.90 to $5.05
• Raised and narrowed Adjusted EPS ⁽²⁾ guidance range to $6.89 to $7.00 from $6.75 to $6.90
• Raised cash flow from operations guidance range to $10.1 billion to $10.6 billion from $9.8 billion to $10.3 billion

CVS Health Corporation (NYSE: CVS) today announced operating results for the three months ended June 30, 2019.

President and Chief Executive Officer Larry Merlo stated, “We posted strong second quarter results, with all of our businesses performing at or above expectations. These results demonstrate our ability to execute on our strategic priorities to accelerate enterprise growth as we seek to fundamentally transform the consumer health experience. Given our performance to date and our expectations for the remainder of the year, we are raising and narrowing our Adjusted EPS guidance range to $6.89 to $7.00.”

“We made meaningful advancements on each of the priorities we outlined at our Investor Day in early June to differentiate, transform and modernize the delivery of care. While still early, we remain confident that we will be able to realize the potential of our innovative and powerful new business model to deliver enhanced value to our clients and the consumers we serve.”

Consolidated Second Quarter Results

• Total revenues and adjusted revenues ⁽³⁾ increased 35.2% and 35.8%, respectively, for the three months ended June 30, 2019 compared to the prior year. Revenue growth was primarily driven by the acquisition of Aetna Inc. (“Aetna”), which the Company acquired on November 28, 2018 (the “Aetna Acquisition”), as well as increased volume and brand name drug price inflation in both the Pharmacy Services and Retail/LTC segments. The revenue increase was partially offset by continued reimbursement pressure in the Retail/LTC segment, price compression in the Pharmacy Services segment, and an increased generic dispensing rate.
• Operating expenses and adjusted operating expenses ⁽⁴⁾ increased 65.2% and 59.1%, respectively, for the three months ended June 30, 2019 compared to the prior year. The increase in operating expenses is due to the impact of the Aetna Acquisition, an increase in intangible amortization related to the Aetna Acquisition and an increase in acquisition-related integration costs. The increase in adjusted operating expenses was primarily driven by the impact of the Aetna Acquisition.
• Operating income and adjusted operating income increased 342.7% and 55.1%, respectively, for the three months ended June 30, 2019 compared to the prior year. The increase in both operating income and adjusted operating income was primarily due to the Aetna Acquisition as well as increased claims volume and improved purchasing economics in the Pharmacy Services segment. These increases were 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 due to the absence of the $3.9 billion pre-tax goodwill impairment charge related to the LTC reporting unit within the Retail/LTC segment recorded in the three months ended June 30, 2018, partially offset by higher intangible asset amortization related to the Aetna Acquisition.
• Net income increased 175.3% for the three months ended June 30, 2019 compared to the prior year primarily due to higher operating income described above, partially offset by (i) higher interest expense primarily due to financing activity associated with the Aetna Acquisition and the assumption of Aetna’s debt as of the Aetna Acquisition date and (ii) higher income tax expense associated with the increase in pre-tax income.
• The effective income tax rate was 25.5% for the three months ended June 30, 2019 compared to (24.1)% for the three months ended June 30, 2018. The difference in the effective income tax rate compared to the prior year was primarily due to the $3.9 billion goodwill impairment charge recognized in the three months ended June 30, 2018, which was not deductible for income tax purposes.

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 and six months ended June 30, 2019 and 2018 were as follows:

• Total revenues increased 4.2% for the three months ended June 30, 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 4.0% on a 30-day equivalent basis for the three months ended June 30, 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 increased 9.6% and 9.7%, respectively, for the three months ended June 30, 2019 compared to the prior year primarily driven by increased claims volume and improved purchasing economics, partially offset by continued price compression. The increase in operating income was also partially offset by increased intangible amortization related to Aetna’s mail order and specialty pharmacy operations.

See the supplemental information on page 21 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 and six months ended June 30, 2019 and 2018 were as follows:

• Total revenues increased 3.7% for the three months ended June 30, 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 June 30, 2019 compared to the prior year primarily driven by increases in health product sales, which benefited from an extended cough and cold season and the impact of the shift of sales associated with the Easter holiday from the first quarter of 2018 to the second quarter of 2019.
• Total prescription volume grew 5.9%, on a 30-day equivalent basis, for the three months ended June 30, 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 increased 169.7% and adjusted operating income decreased 8.3%, respectively, for the three months ended June 30, 2019. The increase in operating income was primarily due to the absence of the $3.9 billion pre-tax goodwill impairment charge related to the LTC reporting unit recorded in the three months ended June 30, 2018. Operating income and adjusted operating income were both negatively impacted by (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 (iii) declining year-over-year performance in the Company’s long-term care business.

See the supplemental information on page 22 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, the Health Care Benefits segment consisted solely of the Company’s SilverScript^® Medicare Part D prescription drug plan (“PDP”) business. The segment results for the three and six months ended June 30, 2019 and 2018 were as follows:

• Total revenues increased $16.6 billion for the three months ended June 30, 2019 compared to the prior year primarily driven by the Aetna Acquisition.
• Operating income and adjusted operating income increased $1.1 billion and $1.4 billion, respectively, for the three months ended June 30, 2019 compared to the prior year primarily driven by the Aetna Acquisition. The increase in operating income was partially offset by an increase in intangible amortization related to the Aetna Acquisition. Operating income and adjusted operating income for the three and six months ended June 30, 2018 reflect the seasonality of earnings for the Company’s SilverScript PDP business. The quarterly earnings of the Company’s SilverScript PDP business generally increase as the year progresses.
• Medical membership as of June 30, 2019 of 22.8 million remained consistent compared with March 31, 2019, reflecting increases in Medicare and Medicaid products, offset by declines in Commercial products.
• The Health Care Benefits segment experienced favorable development of prior-periods’ health care cost estimates in its Commercial, Medicare and Medicaid products, primarily attributable to first quarter 2019 performance and provider recoveries.
• Prior years’ health care costs payable estimates developed favorably by $489 million during the six months ended June 30, 2019. This development is reported on a basis consistent with the prior years’ development reported in the health care costs payable table in the Company’s annual audited financial statements, and does not directly correspond to an increase in 2019 operating results.

See the supplemental information on page 23 for additional information regarding the performance of the Health Care Benefits segment.

2019 Full Year Guidance

The Company confirmed its full year 2019 consolidated GAAP operating income guidance range of $11.8 billion to $12.0 billion and raised the guidance range for full year adjusted operating income to $15.2 billion to $15.4 billion from $15.0 billion to $15.2 billion. The Company also raised and narrowed the GAAP diluted EPS from continuing operations guidance range to $4.93 to $5.04 from $4.90 to $5.05, and raised and narrowed the Adjusted EPS guidance range to $6.89 to $7.00 from $6.75 to $6.90.

The Company also provided guidance for the third quarter of 2019. GAAP diluted EPS from continuing operations is projected to be in the range of $1.16 to $1.20, and Adjusted EPS is projected to be in the range of $1.75 to $1.79.

The adjustments between GAAP operating income and GAAP diluted EPS from continuing operations and adjusted operating income and Adjusted EPS include adding back amortization of intangible assets, integration costs related to the Aetna Acquisition, a store rationalization charge and expected gains/losses on divestitures.

Teleconference and Webcast

The Company will be holding a conference call today for investors at 8:00 a.m. (Eastern time) to discuss its second quarter results. An audio webcast of the call will be broadcast simultaneously for all interested parties through the Investor Relations section of the CVS Health website at http://investors.cvshealth.com. This webcast will be archived and available on the website for a one-year period following the conference call.

About the Company

CVS Health is the nation’s premier health innovation company helping people on their path to better health. Whether in one of its pharmacies or through its health services and plans, CVS Health is pioneering a bold new approach to total health by making quality care more affordable, accessible, simple and seamless. CVS Health is community-based and locally focused, engaging consumers with the care they need when and where they need it. The Company has approximately 9,900 retail locations, approximately 1,100 walk-in medical clinics, a leading pharmacy benefits manager with more than 102 million plan members, a dedicated senior pharmacy care business serving more than one million patients per year and expanding specialty pharmacy services. CVS Health also serves an estimated 38 million people through traditional, voluntary and consumer-directed health insurance products and related services, including rapidly expanding Medicare Advantage offerings and a leading standalone Medicare Part D prescription drug plan. The Company believes its innovative health care model increases access to quality care, delivers better health outcomes and lowers overall health care costs. Find more information about how CVS Health is shaping the future of health at https://www.cvshealth.com.

Cautionary Statement Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of CVS Health Corporation. Statements in this press release that are forward-looking include the information under the heading “2019 Full Year Guidance” and the related endnotes and reconciliations and the information in Mr. Merlo’s quoted statement. By their nature, all forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons as described in our Securities and Exchange Commission filings, including those set forth in the Risk Factors section and under the section entitled “Cautionary Statement Concerning Forward-Looking Statements” in our most recently filed Annual Report on Form 10-K and in our most recently filed Quarterly Report on Form 10-Q.

You are cautioned not to place undue reliance on CVS Health’s forward looking statements. These forward-looking statements are and will be based upon management’s then-current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. CVS Health does not assume any duty to update or revise forward-looking statements, whether as a result of new information, future events or otherwise, as of any future date.

View original content to download multimedia:http://www.prnewswire.com/news-releases/cvs-health-reports-second-quarter-results-300897678.html

SOURCE CVS Health Corporation

Company Codes: NYSE:CVS