CVS Health delivers 'better-than-expected' Q1 results
WOONSOCKET, R.I. — CVS Health delivered better-than-expected results for the first quarter and is off to a “solid start” in the 2016 PBM selling season, according to executives.
“We delivered better-than-expected results this quarter, primarily driven by stronger-than-expected prescription volumes as well as favorable purchasing and rebate economics in the PBM. Adjusted EPS increased 12.2%, to $1.14, 5 cents above the high end of our guidance range, with operating profit in the retail business in line with our expectations and operating profit in the PBM exceeding our expectations. We also generated approximately $1.6 billion in free cash flow, and we continued to return significant value to our shareholders through our disciplined capital allocation practices,” stated president and CEO Larry Merlo.
Net revenues for the quarter ended March 31 enjoyed double-digit gains, increasing 11.1% to $36.3 billion compared with the year-ago period.
Net income for the quarter increased 8.1%, or $92 million, to $1.2 billion, compared with approximately $1.1 billion in the year-ago period. Adjusted earnings per share for the three months ended March 31, 2015 and 2014, was $1.14 and $1.02, respectively, an increase of 12.2%.
Revenues in the pharmacy services segment increased 18.2% to $23.9 billion during the quarter. The increase was primarily driven by growth in specialty pharmacy and pharmacy network claims.
Pharmacy network claims processed during the three months ended March 31 increased 11% to 230.8 million compared to 208 million in the prior year. The increase in the pharmacy network claim volume was primarily due to net new business as well as growth in Managed Medicaid and public exchanges. Mail choice claims processed during the three months increased 2.7% to 20.3 million, compared with 19.8 million in the prior year. The increase in mail choice claims was driven by specialty claim volume and increased claims associated with the continued adoption of our Maintenance Choice offerings.
During the 2015 selling season, gross wins totaled $7.5 billion and net wins were $4.1 billion — both up $500 million from the last earnings update. The increase was driven primarily by growth in membership within some health plan clients, as well as some additional wins.
Meanwhile, CVS Health is off to a “solid start” in the 2016 PBM selling season, having completed about one-third of client renewals, which, according to Merlo, is typical for this time of year.
In commenting on the results, William Blair analyst Mark Miller stated in a research note, “For 2016, the company has completed about one-third of renewals and is pleased with its traction in the marketplace. We believe that CVS remains well positioned to gain share with payers by using aggressive formulary management, advanced clinical offerings (Specialty Connect), and channel-agnostic network flexibility (Maintenance Choice 1.0 and 2.0).”
Merlo also said that revenues in specialty pharmacy continued to climb, rising 46% thanks to volume, new products, inflation and the impact of its Specialty Connect program.
Furthermore, the company’s infusion capabilities through Coram are proving to be another differentiator with clients, according to Merlo, as the number of infusion patients serviced during the quarter jumped 15.7% from the prior year.
Health and Beauty Journey Continues
Merlo told analysts that its journey to position the company “as a leading health and beauty destination” continues. This year, the company will launch phase one of its healthy foods rollout, offering consumers more healthy choices in a select group of stores.
In addition, the company’s beauty elevation program will launch in several thousand stores. It also continues to test an array of changes to further enhance its front-store clustering efforts, including a number of store resets that leverage the knowledge gained from the acquisition of Navarro Discount Pharmacy, a South Florida chain that caters to the Hispanic consumer.
The company’s initiative to “unlock adherence” continues to progress and, according to Merlo, the company is looking to launch several new products later this year that will be available to both patients and their caregivers to help improve adherence.
Revenues in the retail pharmacy segment increased 2.9%, or $471 million, to $17 billion during the quarter.
Same-store sales increased 1.2% over the first quarter of last year, with pharmacy same-store sales up 4.2%.
Front store same-store sales were down 6.1% but, if you adjust for the tobacco impact, front-store comps would have been up about 2%. The impact of the tobacco exit and associated baskets was about 800 basis points during the quarter — roughly 100 basis points less than originally anticipated.
“We are very pleased with our solid start to the year and our strong competitive position, and our distinctive channel-agnostic solutions are resonating strongly in the marketplace,” Merlo told analysts.
Looking ahead, the company raised the low end of its EPS guidance range for the full year 2015. CVS Health now expects to deliver adjusted EPS of $5.08 to $5.19, up from $5.05 to $5.19, and GAAP diluted EPS from continuing operations of $4.80 to $4.91, up from $4.77 to $4.91 in 2015.
“We reiterate our outperform rating and see no reason to dial back enthusiasm for shares, even as we recognize that analysts and investors widely embrace CVS Health’s strong operating momentum,” Miller stated in the research note.