CVS Performs Above Expectations, Promises An Even Better Future With A Focus On Partnerships

by Trefis Team
CVS Health
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CVS Health (NYSE:CVS) reported its Q2 2017 earnings on August 8 and it seems to be recovering from the difficulties of recent times that dampened its first quarter results. Its net income grew by around 19% to $1.1 billion, while its net revenues grew by 4.5% to $45.7 billion mainly driven by the healthy performance of its pharmacy benefits management (PBM) business. The pharmacy services revenues grew by 9.5% y-o-y. The segment includes the pharmacy benefits manager business and specialty pharmacy services. However, its  retail/LTC segment revenues continued performing poorly, due to the loss of contracts to Walgreens and lower same store sales, with a 2.2% decline in revenues to $19.6 billion. In 2016, the company lost contracts with the Department of Defense and Prime Therapeutics to its rival Walgreens. The new deals came into effect in December 1, 2016 and January 1, 2017, respectively, and is slowing down CVS’ performance in 2017. The company took several measures to counter the loss of contracts including the expansion of its ongoing partnership with Optum and the offer of bundled service offerings to its customers. It plans to improve its productivity by focusing on store rationalization and optimizing its delivery platform. These measures are expected to bring savings to the tune of $3 billion by the end of 2021.

CVS relocated 10 retail stores during the quarter and opened another 27, which took its store count to 9,700 at the end of Q2 2017. The company expects to close around 70 retail stores in 2017, out of which 63 have been closed in the first half of the year. Looking at the improvement in its performance in the current quarter, the company revised its EPS guidance slightly upwards for full year 2017. Now it is expected to fall between $5.83 and $5.93. CVS expects the current year to be one for “rebuilding” as it continues to look for avenues to compensate for the loss of contracts.

CVS Is Undertaking Several Partnerships To Further Improve Its Performance 

The company has undertaken certain steps to ensure a better growth trajectory in the future. It is focusing on partnering with all payers to boost volumes and capture market share. For example, its partnership with Optum to provide 90-day retail solutions to the latter’s ASO clients was launched in July.  A partnership with Cigna Health Works has been announced in June. It has also partnered with Express Scripts’ Diabetes Care Value program to be their retail network option. The company is in talks with many such PBM health plans to expand the reach of its network.

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