PBM unit leads CVS Health to record fourth quarter

WOONSOCKET, R.I. — CVS Health reported record fiscal fourth-quarter and full-year 2016 results, headlined by net revenues for the three months ended Dec. 31 increasing 11.7%, or $4.8 billion, to $46 billion, up from $41.1 billion in the three months ended December 31, 2015. For the year ended Dec. 31, net revenues increased 15.8%, or $24.2 billion, to $177.5 billion, compared to $153.3 billion for the year ended December 31, 2015.

Net income also enjoyed a healthy increase, with GAAP diluted earnings per share rising to $1.71 billion, or $1.59 per share in the most recent quarter, compared to $1.5 billion, or $1.34 per share in the year-ago period. Adjusted earnings per share were $1.71, an increase of 11.7% year over year.

Net income for the year ended Dec. 31 was $5.3 billion, an increase of $80 million or 1.5%.

Perhaps the greatest source of strength can be attributed to revenues in the Pharmacy Services Segment increasing 17.9% to $31.3 billion in the three months ended Dec. 31. This increase was primarily driven by growth in pharmacy network and specialty pharmacy claims. Pharmacy network claims processed during the three months ended Dec. 31 increased 23.9% to 294.3 million, compared to 237.4 million in the prior year. The increase in pharmacy network claim volume was primarily due to an increase in net new business.

Mail choice claims processed during the three months ended Dec. 31 were also robust, increasing 4.7% to 23.2 million, compared to 22.2 million in the prior year. The increase in the mail choice claim volume was primarily driven by continued adoption of our Maintenance Choice offerings and an increase in specialty pharmacy claims, partially offset by a decline in traditional mail volume. For the year ended December 31, 2016, net revenues in the Pharmacy Services Segment increased 19.5% to $120.0 billion, compared to $100.4 billion in the year ended December 31, 2015.

Revenues in the Retail/LTC Segment increased 4.7% to $20.8 billion in the three months ended Dec. 31. The increase was largely driven by the addition of the pharmacies of Target, which were acquired in December 2015. Pharmacy same store prescription volumes rose 2% on a 30-day equivalent basis. Same store sales decreased 0.7% versus the prior year, with pharmacy same store sales up 0.2% and front store same store sales down 2.9%. Front-store same-store sales were negatively impacted by softer customer traffic and efforts to rationalize promotional strategies, partially offset by an increase in basket size. Pharmacy same store sales were negatively impacted for the quarter by approximately 380 basis points due to recent generic introductions.

“In 2016, we delivered strong results across the enterprise, with revenues up nearly 16% and Adjusted EPS up more than 13%. Adjusted EPS in the fourth quarter came in just above the high end of our guidance, as the Retail/LTC segment delivered results in line with our expectations while the PBM exceeded expectations,” said Larry Merlo, president and CEO of CVS. “We also generated more than $8 billion in free cash for the full year, exceeding our expectation, and we returned more than $6 billion to shareholders through dividends and share repurchases. Our substantial cash generation capabilities provide opportunities to bolster our growth, and we will continue to be thoughtful and disciplined with respect to using our free cash to return value to shareholders.”

For its 2017 fiscal year, CVS expects to deliver GAAP diluted earnings per share of $5.02 to $5.18 and Adjusted earnings per share of $5.77 to $5.93 for the full year 2017. CVS expects to deliver GAAP diluted EPS of $0.82 to $0.88 and Adjusted EPS of $1.07 to $1.13 in the first quarter of 2017.

“As we outlined late last year, we have a four-point plan in place to return to more robust levels of growth in the years ahead,” said Merlo. “We remain confident in our model and our position in the evolving health care landscape. We can bring value to all health care stakeholders, helping them achieve their goals of making care more affordable, accessible, and effective.”

CVS opened 40 new retail stores and closed 25 retail stores in its fiscal fourth quarter. In addition, it relocated 16 retail stores. As of Dec. 31, the CVS operated 9,709 retail stores, including pharmacies in Target stores, in 49 states, the District of Columbia, Puerto Rico and Brazil.

As CVS previously discussed, it intends to close approximately 70 retail stores during 2017 and expects to take a charge of approximately $225 million associated with the remaining lease obligations of such stores. The vast majority of the store closures are expected to occur by the end of this quarter.