Pharmacy Services Continue To Drive CVS’s Growth

by Trefis Team
CVS Health
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CVS (NYSE:CVS) announced its Q3 earnings on Tuesday, November 8th. In the quarter ended September 30th, the company’s revenue grew by 15.4% year-on-year (y-o-y) to $44.6 billion for the quarter. Despite the growth, the company missed the consensus revenue expectations compiled by Reuters. The increase in revenues was driven by the strong performance of the Pharmacy Services Segment, which recorded revenue growth of 19.2% over the prior year quarter to $30.4 billion. The Retail/LTC segment’s revenues increased 12.4% on a y-o-y basis to $20.1 billion, driven by the acquisitions of Omnicare and Target’s pharmacies during the last year as well as growth in pharmacy same store sales. Operating income increased 20.8% on a y-o-y basis to $2.8 billion, primarily aided by the earlier-than-expected completion of the acquisition of Target’s Pharmacies, in addition to growth in specialty pharmacy and Medicare Part D plans. The company’s net income was $1.54 billion, an increase of 23.6% over the same period last year, while EPS grew 31% over the same period last year to $1.44. On an adjusted basis, the company reported EPS of $1.64, 7 cents higher than analysts’ estimates complied by Reuters and 28% higher than the same period last year.

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Segment Performance

The Pharmacy Services segment continued to drive the company’s growth in the third quarter as well, with revenues increasing 19% over the same period last year to $30.4 billion. The uptick in revenues was fueled by growth in pharmacy network claims and specialty pharmacy, partially offset by increased revenues from generic drugs.  For the quarter ended September 30th, pharmacy network claims rose 23% over the prior year quarter to 229 million. Despite the surge in revenues, the company’s revenue per store remained flat, primarily due increased sales of generic drugs and the opening of 48 new stores. The opening of new stores was in line with CVS’s plans to expand its store count by 100 by the end of the current fiscal year.

For the quarter ended September 30th, the Retail/LTC Segment’s revenues also jumped 12.5% over the same period last year to $20.1 billion, aided by new stores and a 2.3% rise in retail sales, partially offset by a 1% decline front store same store sales, prescription growth rates and higher sales of generic drugs. The company’s retail pharmacy market share increased 2 percentage points over the same period last year to 23.8%.

For the first nine months of the current fiscal year, CVS’s free cash flow almost doubled to $6.6 billion, primarily aided by a 64% surge in net cash from operations.

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Going forward, CVS expects to generate EPS in the range of $1.52 to $1.58 in the fourth quarter, and $1.64 to $1.70 on an adjusted basis. The higher end would be a 10.75% increase over Q4 2015 figures. For the full year, the company expects revenues to be 12.25% to 14% higher than last year.

See Full Analysis For CVS Here

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