Key Takeaways From CVS’ Earnings

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CVS (NYSE:CVS) announced its Q4 and full year earnings on Thursday, February 9. In the quarter ended December 31st, the company’s revenue grew by 12% year-on-year (y-o-y) to $46 billion for the quarter, primarily on the basis of the strong performance of the Pharmacy Services Segment. Despite the growth, the quarterly revenue figures actually missed market expectations by $530 million. The increase in revenues was driven by the strong performance of the Pharmacy Services Segment, which recorded an increase of 18% in revenues over the prior year quarter to $31.3 billion. The Retail/LTC segment’s revenues increased 5% on a y-o-y basis to $20.9 billion. This was driven by the acquisitions of Omnicare and Target’s pharmacies during the last year. Operating income increased 10% on a y-o-y basis to $3 billion. The integration costs related to the acquisitions inflated the company’s operating expenses and resulted in compression of the company’s operating margins, which lowered by 12 basis points over the prior year quarter. Despite this, the company’s earnings increased 5% on a y-o-y basis to $1.60 per share. On an adjusted basis, the company reported net income of $1.71 per share, 11% higher than the prior year quarter and 4 cents higher than the market expectations.

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Segment Performance

The Pharmacy Services Segment, the largest contributor to the company’s revenue, witnessed growth of 18% on a y-o-y basis and reported revenues of $31.3 billion for the quarter. For the full year, the segment reported a 20% increase in revenues, which were in tune of $120 billion. The growth in quarterly revenue was fueled by a 24% increase in pharmacy network claims, primarily due to growth in net new business. The division’s operating income also increased 21% on a y-o-y basis to $1.4 billion for the quarter, increased generic drug sales.

Outlook of the Year

After the results in the last quarter and in light of recent developments, the company has reiterated its adjusted earnings per share guidance of $5.77 to $5.93 for the full year. On a GAAP basis, the company expects to generate EPS in the range of $5.02 to $5.18.


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