Key Takeaways And Trends From CVS Q1 Results

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CVS Health (NYSE:CVS), the second largest drugstore chain in the U.S., has posted decent growth in its first quarter 2018 results.  The company posted a 2.6% increase in sales to $45.7 billion in Q1. This growth was primarily driven by higher prescription volumes within the retail pharmacy business and a lower effective income tax rate. During the first quarter CVS continued to innovate in the healthcare market. They introduced “Real-time Benefits,” a process to share plan design in real-time at the point of prescribing with the physician. They also launched an initiative, “Rx Savings Finder,” to combat rising drug prices. This initiative provides improved visibility into drug costs at the pharmacy counter. These initiatives have benefited consumers by improving transparency and lowering costs.

The company’s adjusted earnings was reported at $1.48 per share in Q1 reflecting an additional adjustment for net interest expense from the proposed Aetna acquisition.

Looking ahead, the company is now forecasting a 0.25% to 2.75% growth in its operating profit for the year, and growth of 5.25% to 8.5% in Q2. CVS is focused on long-term growth initiatives and to invest in process improvements and technology enhancements that will position them well to expand their reach in providing access to high-quality and more affordable care. Also, the Aetna transaction will provide CVS the means to further lower health care costs for consumers and payers, in turn benefiting the company in the longer run. Please refer to our dashboard analysis on CVS.

Segment-Wise Performance

Revenue for its Pharmacy Services segment grew by 3.2% % y-o-y to $32.2 billion in the first quarter driven by growth in pharmacy network and specialty claim volume as well as brand inflation, partially offset by continued price compression and increased generic dispensing. This segment includes the pharmacy benefits manager business and specialty pharmacy services.

In its Retail/LTC segment, revenues increased by 5.6% to $20.4 billion driven by an increase in same store prescription volume of 8.5%, on a 30-day equivalent basis, due to continued adoption of our Patient Care Programs, partnerships with PBM’s and health plans, and inclusion in a number of additional Medicare Part D networks this year, as well as brand inflation.

CVS’ Business Will Likely Receive A Major Boost From the Acquisition of Aetna

Announced in December 2017, the acquisition of Aetna by CVS will likely provide a major boost to CVS’s business in Q2 2018 and beyond. In March 2018 the transaction was approved by shareholders of both companies and it will be closed by Q2. The combination is expected to provide consumers with a more integrated experience, reduced costs, and improved access to health care experts in homes. This will combine CVS’s dense local presence through pharmacies and clinics with Aetna’s health care benefits and services.

CVS’s PBM business will get a shot in the arm due to greater negotiating power with the drug companies. The company will also be able to tap into Aetna’s 45 million user base and provide them with its offerings which include pharmacy benefit management – the negotiation of  drug prices on the behalf of insurance companies – MinuteClinics, home infusion services, and long-term care pharmacies.

Outlook for full fiscal 2018

We anticipate CVS to continue its healthy growth momentum in Q2 2018 and beyond with a rise in the top line. Management forecasts more cautious full year 2018 adjusted operating profit growth in the range of between 0.25% to 2.75%.

 

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