Before the opening bell on Feb. 16, CVS Health Corp. (CVS, Financial) released fourth-quarter results that topped Wall Street's expectations.
The key numbers
The Woonsocket, Rhode Island-based company posted net income of $975 million, translating to earnings of 75 cents per share. Adjusted earnings came in at $1.30 per share, which exceeded analysts' estimates of $1.24. Revenue of $69.55 billion climbed 4% year over year and surpassed expectations of $68.75 billion.
For full-year 2020, the company reported GAAP earnings of $5.47 per share from continuing operations. That compares with earnings of $5.08 per share recorded in 2019. Total revenue stood at $268.7 billion, which reflected year-over-year growth of 4.6%.
Operating income decreased roughly 17% as the company witnessed negative impacts from the coronavirus pandemic, particularly in the Health Care Benefits and Retail/LTC segments. For the year, however, the same metric rose 16.1% as the company sold its Coventry Health Care Workers' Compensation business, which resulted in a $271 million pre-tax gain. Additionally, people postponed elective procedures and voluntary use of their health care benefits due to Covid-19.
President and CEO Karen S. Lynch commented on the company's performance:
"The COVID-19 pandemic presented unique challenges to our business and to the entire health care industry. We utilized the full depth and breadth of our capabilities and our presence in local communities across the country, to play a leadership role in COVID-19 testing and vaccine administration. Our ability to deliver 2020 full-year results above expectations is a testament to the strength of our strategy and the flexibility of our diversified health services model."
Segment performance
Revenue attributable to the Pharmacy Services segment amounted to $36.4 billion, down $37.1 billion from last year as disclosed client losses coupled with persistent price compression negated the growth in specialty pharmacy and brand inflation. By contrast, operating income surged 11.6% in the reported quarter thanks to lower amortization expense.
Revenue in the Retail/LTC segment rose 6.6% in the three months ended Dec. 31. The company did witness growth in the retail pharmacy prescription volume as well as brand inflation. Front of the store revenue dipped 1.6% owing to poor customer traffic as well as lower cough and cold product sales. Prescriptions filled grew 2% on a 30-day equivalent basis. Operating income plunged 13.9% as persistent reimbursement pressure coupled with the negative impacts of the pandemic more than offset strong pharmacy volume and increased generic drug purchasing.
In the Health Care Benefits division, revenue surged 11.4% year over year to $19.1 billion, which was driven by growth in the segment's government products as well as positive impacts from cost savings measures. By contrast, operating income dropped 85.5% due to coronavirus-related expenses.
Response to Covid-19
The drugstore chain announced last year 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 76,000 workers. In a statement, Lynch provided a detailed update on the company's response to Covid-19:
"Our goal is to make health care more accessible, more affordable and simpler. In order to do this, we will accelerate the pace of our progress through targeted investments in key areas that will drive our consumer-focused strategy. We believe that solving consumer health needs will deliver better health outcomes and lower costs while creating future economic benefit for CVS Health and its shareholders."
2021 outlook
For 2021, CVS Health predicts adjusted earnings to fall within the range of $7.39 to $7.55 per share. That compares with Refinitiv's estimate of $7.54 per share.Operational cash flow is anticipated to between $12 billion and $12.5 billion.
Disclosure: I do not hold any positions in the stocks mentioned.
Read more here:
- General Motors: A Stunning Year and a Positive Outlook
- PepsiCo Earnings: Key Takeaways for Investors
- Coca-Cola Spikes on Better Than Expected 4th-Quarter Earnings
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
