Key Takeaways and Trends from CVS’s Q3 Earnings Release

by Trefis Team
CVS Health
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CVS Health (NYSE:CVS), the second largest drugstore chain in the U.S., has posted decent growth in its third quarter 2018 results.  The company posted a 2.4% increase in sales to $47.3 billion with adjusted earnings reported at $1.73 per share in Q3. This growth was primarily driven by higher prescription volumes within the retail pharmacy business.  The top line got a major boost by a strong Pharmacy Services segment, benefiting from the upside in the specialty services. The company’s retail business also showed  improvement, with revenue from the front store, which includes products like makeup and vitamins, increasing 2% from last year while same-store sales were up 0.8 %.  The company also anticipates its $69 billion purchase of health insurer Aetna to close before Thanksgiving.

Looking ahead, the company expects its GAAP diluted EPS from continuing operations to grow in the range of $1.40 to $1.50 for the full year 2018. 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. 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 Takeaways From CVS’s Q3 2018 Earnings.

Segment-Wise Performance – Revenue for its Pharmacy Services segment grew by 2.6% to approximately $33.8 billion in Q3 driven by growth in pharmacy network and specialty claim volume as well as brand inflation, partially offset by continued price compression. This segment includes the pharmacy benefits manager business and specialty pharmacy services.

In its Retail/LTC segment, revenues increased by 6.4% to $20.9 billion driven by an increase in same store prescription volume of 8.7%, on a 30-day equivalent basis, due to continued adoption of the 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.

Upcoming Acquisition of Aetna is Likely to give A Major Boost to CVS’s  Business- Announced in December 2017, the acquisition of Aetna by CVS is expected to close shortly before Thanksgiving as its regulatory approval process is proceeding within a time frame consistent with expectations. This deal will likely provide a major boost to CVS’s business in Q4 2018 and beyond. CVS and Aetna last month received conditional approval from the Department of Justice on their merger. The DOJ required the pair to divest Aetna’s Medicare Part D prescription drug business in order to go through with the transaction. Aetna in September agreed to sell its Medicare Part D prescription drug plan business to WellCare Health Plans Inc. 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 this healthy growth momentum in Q4 2018 and beyond, with a rise in the top line continuing over time.


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