Before the opening bell on May 4, CVS Health Corp. (CVS, Financial) released first-quarter 2021 results, wherein both earnings and revenue topped Wall Street's expectations due to solid retail and pharmacy service sales as more customers visited stores for Coronavirus vaccinations, tests and prescriptions.
The company's shares surged 2.8% in premarket trading to $79.90 apiece following the earnings announcement.
The key numbers
The Woonsocket, Rhode Island-based company posted net income of $2.22 billion, translating to earnings of $1.68 per share. Adjusted earnings came in at $2.04 per share, which exceeded analysts' estimates of $1.72. Revenue of $69.1 billion climbed 3.5% year over year and surpassed expectations of $68.39 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 increased roughly 3.5% as the company witnessed robust growth in the Pharmacy Services and Health Care Benefits segments. During the quarter, however, the company experienced negative impacts from the Coronavirus pandemic, particularly in the Retail/LTC segments.
President and CEO Karen S. Lynch commented on the company's performance:
"We delivered strong first quarter results and improved our outlook for the year. We continue to execute on our strategy while simultaneously managing through a pandemic, helping the country on the road to recovery. Our unmatched assets and strength of our brand are driving results as we work toward improving care delivery and driving growth."
Segment performance
Revenue attributable to the Pharmacy Services segment amounted to $36.3 billion, up $1.3 billion from last year as growth in specialty pharmacy and brand inflation was only partially offset by persistent price compression. Likewise, adjusted operating income surged 27.6% in the reported quarter thanks to lower amortization expense.
Revenue in the Retail/LTC segment rose 2.3% in the three months ended March 31. The company did witness growth in the retail pharmacy prescription volume as well as brand inflation. Front of the store revenue dipped year over year owing to poor customer traffic as well as lower cough and cold product sales. Prescriptions filled remained flat on a 30-day equivalent basis. Adjusted operating income plunged 26.7% 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 6.7% year over year to $20.5 billion, which was driven by growth in the segment's government products as well as positive impacts from cost savings measures. Adjusted operating income surged 19.5% due to better performance in the Government Services business.
Impact of 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 $7.56 to $7.68 per share. That compares with previous estimate of $7.39 to $7.55 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.
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
