Before the opening ball on Aug. 5, CVS Health Corp. CVS released its second-quarter results that topped Wall Street’s expectations.
By the numbers
The Woonsocket, Rhode Island-based company posted net income of $2.98 billion, translating to earnings of $2.26 per share. Adjusted earnings came in at $2.64 per share, which exceeded analysts’ estimates of $1.93. Revenue of $65.3 billion climbed 3% year over year and surpassed expectations of $64.23 billion.
President and CEO Larry J. Merlo commented on the company's performance:
"We have a strong foundation of clinical expertise, data analytics and digital capabilities, and unmatched consumer and community reach which has allowed us to rapidly bring our strategy to life at an unprecedented time. The environment surrounding COVID-19 is accelerating our transformation, giving us new opportunities to demonstrate the power of our integrated offerings and the ability to deliver care to consumers in the community, in the home and in the palm of their hand which has never been more important."
Operating income grew 40.5% from the prior-year quarter as people postponed elective procedures and voluntary use of their health care benefits.
Segment performance
Revenue attributable to the Pharmacy Services segment amounted to $34.9 billion, up only $47 million from last year as disclosed client losses coupled with persistent price compression negated the growth in specialty pharmacy and brand inflation. Operating income surged 6.2% in the reported quarter thanks to lower amortization expense.
Likewise, revenue in the Retail/LTC segment rose a meagre 1%. The company did witness growth in the retail pharmacy prescription volume as well as brand inflation. Front of the store revenue declined 4.6% as customers were confined to their homes due to stay-at-home orders. Prescriptions filled declined roughly 1% on a 30-day equivalent basis. Operating income dropped about 40% due to coronavirus-related expenses.
In the Health Care Benefits division, revenue surged 6.1% year over year to $18.5 billion, which was highly driven by growth in the segment’s government products as well as positive impacts from cost savings measures. Operating income rose a solid 188.7%.
Response to Covid-19
The drugstore chain announced in late March that it would employ as many as 50,000 additional part-time, full-time and short-term workers to help keep pace with the increased demand in addition to helping with services like home prescription delivery. So far, the company has engaged more than 40,000 workers.
2020 outlook
For 2020, CVS Health predicts earnings to fall within the range of $7.14 to $7.27 per share. That compares with its previously forecasted range of $7.04 to $7.17 per share. Operational cash flow is anticipated to between $11 billion and $11.5 billion.
Disclosure: I do not hold any positions in the stocks mentioned.
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