CVS Health provides 2015 guidance, outlines growth plans at Annual Analyst Day
WOONSOCKET, R.I. — Declaring that it is positioned for today and preparing for tomorrow, CVS Health outlined the steps the company is taking to continue to meet the changing needs of payors, providers and customers at its annual Analyst Day in New York City on Tuesday.
The company also provided 2015 guidance and reviewed its five-year steady state targets.
"We are winning in the marketplace and driving solid and sustainable growth," said Larry Merlo, president and CEO of CVS Health. "We foresaw the changes ahead in the health care landscape and we built a suite of assets that will enable us to continue to capitalize on the opportunities created. Only CVS Health has an integrated enterprise model that brings differentiated, channel-agnostic solutions to the marketplace that our competitors simply cannot match. Our deep clinical expertise and insights across the enterprise enable us to deliver superior outcomes at a lower cost."
Dave Denton, EVP and CFO, reaffirmed the company's guidance for 2014 and outlined CVS Health's guidance for 2015. The company expects to deliver adjusted earnings per share from continuing operations of $5.05 to $5.19 in 2015, an increase of 12.5% to 15.75% (excluding the loss on early extinguishment of debt in 2014), and GAAP diluted earnings per share from continuing operations of $4.77 to $4.91 per share. The company also expects to generate free cash flow of $5.9 billion to $6.2 billion in 2015, and cash from operations of $7.6 billion to $7.9 billion in 2015. This guidance assumes the completion of $6 billion in share repurchases during 2015.
CVS Health highlighted its position as a pharmacy innovation company that utilizes a channel-agnostic, enterprise focus to fulfill its purpose of helping people on their path to better health while driving value for all stakeholders. In other presentations, CVS Health executives addressed how the company is preparing for the continued evolution of the health care delivery system through its PBM operations and unique specialty pharmacy assets, as well as how the company is reinventing retail pharmacy, expanding access to care through CVS/Minuteclinic and helping to create a more connected health care system to improve outcomes for patients while better managing costs for payors.
Health reform is also driving the importance that health plans are playing in the health care marketplace now and into the future. CVS Health stated that it sees this as an opportunity to grow its enterprise share by continuing to serve these health plans through its innovative offerings, either as PBM clients or as strategic partners when the plans are not PBM clients.
In another growing trend, as specialty drug utilization is increasing and new treatments for complex conditions are coming to market at elevated price points, plan sponsors can expect to see specialty drug costs grow to nearly half of their total pharmacy spend.
"With rapid specialty pharmacy growth expected for the next several years, plan sponsors will clearly need innovative solutions to stem the tide. We believe we are best positioned, with an unmatched suite of specialty capabilities to holistically manage patients and help payors manage this spend in both the pharmacy and medical benefit,” Merlo stated.
Merlo predicts that the "retailization" of health care will continue to grow as more employers move their employees into consumer-directed health plans.
"We will be able to win in a connected health care system with our consumer-friendly offerings such as the convenience of CVS/pharmacy and the low-cost, transparent pricing model of CVS/Minuteclinic. Both of these are trusted brands with name recognition to attract value-conscious consumers," said Merlo. "We are also expanding our digital offerings to better engage with customers, improve their experience and increase medication adherence. With the growing focus on population health, there has been a desire among physicians to increase communication and coordination with their patients' pharmacists and that is an area where we can excel."
Dividend Increase and New Share Repurchase Authorization
The board of directors approved a 27% increase in its quarterly cash dividend, to 35 cents per share on the common stock of the company. This increase translates to $1.40 per share annually, up 30 cents per share, and keeps the company solidly on track to meet its 2018 dividend payout ratio target of 35%. The quarterly dividend is payable on Feb. 2, 2015, to holders of record on Jan. 22, 2015.
In addition, the company announced that its board of directors approved a new share repurchase program for up to $10 billion of the company's outstanding common stock, reflecting the board's ongoing commitment to returning value to shareholders. The share repurchase authorization, which is effective immediately and is expected to be completed over a multi-year period, permits the company to effect the repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase transactions, and/or other derivative transactions. Combined with approximately $2.7 billion that remains on the share repurchase program approved by the board of directors in December of 2013, this new $10 billion share repurchase authorization makes available a total of approximately $12.7 billion for share repurchase