First Quarter Year-over-year Highlights:
Net revenues increased 3.0% to $44.5 billion
GAAP diluted EPS from continuing operations of $0.92; Adjusted EPS of $1.17
Generated cash flow from operations of $3.5 billion; free cash flow of $3.1 billion
Confirmed full year GAAP diluted EPS from continuing operations of $5.02 to $5.18
Confirmed full year Adjusted EPS of $5.77 to $5.93
Provided second quarter GAAP diluted EPS from continuing operations of $1.15 to $1.19
Provided second quarter Adjusted EPS of $1.29 to $1.33
Confirmed full year cash flow from operations of $7.7 to $8.6 billion; free cash flow of $6.0 to $6.4 billion
WOONSOCKET, RHODE ISLAND, May 2, 2017 - CVS Health Corporation (NYSE: CVS) today announced operating results for the three months ended March 31, 2017.
President and Chief Executive Officer Larry Merlo said, “2017 is off to a solid start as we posted results this quarter that surpassed our expectations. At the same time, we generated $3.1 billion of free cash and continued to return value to our shareholders through high-return investments in our business as well as dividends and share repurchases. However, while we are pleased with our financial performance versus our expectations, we won’t be satisfied until the company returns to sustainable, healthy earnings growth.”
Mr. Merlo continued, “We continue to expect 2017 to be a rebuilding year, but our goals remain clear, and we fully intend to return to healthy levels of growth. We remain confident in our model as well as our position in the evolving health care landscape, and our ability to generate significant levels of cash will continue to play an important role in driving shareholder value over the longer term.”
Net revenues for the three months ended March 31, 2017 increased 3.0%, or $1.3 billion, to $44.5 billion, up from $43.2 billion in the three months ended March 31, 2016.
Revenues in the Pharmacy Services Segment increased 8.5% to $31.2 billion in the three months ended March 31, 2017. This increase was primarily driven by growth in pharmacy network claim volume as well as brand inflation and growth in specialty pharmacy, partially offset by increased generic dispensing and price compression. Pharmacy network claims processed during the three months ended March 31, 2017, increased 10.5%, on a 30-day equivalent basis, to 376.8 million, compared to 340.9 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 March 31, 2017, increased 4.5%, on a 30-day equivalent basis, to 63.7 million, compared to 61.0 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.
Revenues in the Retail/LTC Segment decreased 3.8% to $19.3 billion in the three months ended March 31, 2017. The decrease was largely driven by a 4.7% decrease in same store sales, continued reimbursement pressure and an increase in the generic dispensing rate.
Pharmacy same store sales decreased 4.7% and were negatively impacted by approximately 480 basis points due to recent generic introductions. Same store prescription volumes declined 1.4%, on a 30-day equivalent basis, in the three months ended March 31, 2017. The previously-discussed marketplace changes that restrict CVS Pharmacy from participating in certain networks had an approximately 460 basis point negative impact on same store prescription volumes, while the absence of leap day versus the prior year had an approximately120 basis point negative impact on same store prescription volumes. Adjusting for both the network changes and leap day, same store prescription volumes would have been 580 basis points higher, and would have increased 4.4% in the quarter on a 30-day equivalent basis.
Front store same store sales declined 4.9% in the three months ended March 31, 2017. The absence of leap day versus the prior year had a 100 basis point negative impact on front store same store sales, while the shift of the Easter holiday to the second quarter in 2017 from the first quarter in 2016 had a 75 basis point negative impact. Front store sales were also negatively impacted by softer customer traffic and efforts to rationalize promotional strategies, partially offset by an increase in basket size.
For the three months ended March 31, 2017, the generic dispensing rate increased approximately 140 basis points to 87.0% in our Pharmacy Services Segment and increased approximately 180 basis points to 87.5% in our Retail/LTC Segment, compared to the prior year.
For the three months ended March 31, 2017, consolidated operating profit decreased $392 million, or 18.0%. The decrease was due to the previously-announced restricted networks that exclude CVS Pharmacy as well as continued price compression in the Pharmacy Services Segment and continued reimbursement pressure in the Retail/LTC Segment. The decrease also reflects a charge of $199 million associated with the closure of 60 retail stores in connection with our enterprise streamlining initiative. This was partially offset by a $46 million decrease in acquisition-related integration costs in the three months ended March 31, 2017 versus the same quarter last year.
Net Income and Earnings Per Share
Net income for the three months ended March 31, 2017 decreased 16.9%, to $953 million. This was primarily driven by the decline in operating profit, partially offset by lower interest expense of $31 million related to refinancing activity in the prior year as well as the improvement in the effective income tax rate, from 39.4% to 37.3%. The decrease in the tax rate was largely driven by $19 million in discrete tax benefits related to the required adoption of new accounting guidance for share-based compensation.
GAAP earnings per diluted share from continuing operations (“GAAP diluted EPS”) for the three months ended March 31, 2017 was $0.92, compared to $1.04 in the prior year. Adjusted earnings per share (“Adjusted EPS”) for the three months ended March 31, 2017 and 2016, was $1.17 and $1.18, respectively. Further detail is shown in the Adjusted Earnings Per Share reconciliation later in this release.
The Company confirmed its previous EPS and cash flow guidance for the full year and provided guidance for the second quarter of 2017. The Company continues to expect to deliver GAAP diluted EPS of $5.02 to $5.18 and Adjusted EPS of $5.77 to $5.93 for the full year 2017. The Company expects to deliver GAAP diluted EPS of $1.15 to $1.19 and Adjusted EPS of $1.29 to $1.33 in the second quarter of 2017. The Company also confirmed its 2017 cash flow from operations guidance of $7.7 to $8.6 billion and free cash flow guidance of $6.0 to $6.4 billion. These 2017 guidance estimates assume the completion of $5.0 billion in share repurchases.
Real Estate Program
During the three months ended March 31, 2017, the Company opened 27 new retail stores and closed 60 retail stores. In addition, the Company relocated 10 retail stores. As of March 31, 2017, the Company operated 9,676 retail stores, including pharmacies in Target stores, in 49 states, the District of Columbia, Puerto Rico and Brazil.
As previously disclosed, the Company intends to close a total of approximately 70 retail stores during 2017 and expects to take a cumulative charge of approximately $220 million primarily associated with the remaining lease obligations of such stores. The Company closed 60 of the 70 retail stores in the three months ended March 31, 2017 and took a charge of $199 million. The Company expects to close approximately ten additional stores during the remainder of 2017.
Teleconference and Webcast
The Company will be holding a conference call today for the investment community at 8:30 am (EDT) to discuss its quarterly results. An audio webcast of the call will be broadcast simultaneously for all interested parties through the Investor Relations section of the CVS Health website at http://investors.cvshealth.com. This webcast will be archived and available on the website for a one-year period following the conference call.
About the Company
CVS Health is a pharmacy innovation company helping people on their path to better health. Through its nearly 9,700 retail locations, more than 1,100 walk-in medical clinics, a leading pharmacy benefits manager with nearly 90 million plan members, a dedicated senior pharmacy care business serving more than one million patients per year, expanding specialty pharmacy services, and a leading stand-alone Medicare Part D prescription drug plan, the company enables people, businesses and communities to manage health in more affordable and effective ways. This unique integrated model increases access to quality care, delivers better health outcomes and lowers overall health care costs. Find more information about how CVS Health is shaping the future of health at https://www.cvshealth.com.
This press release contains forward-looking statements within the meaning of the federal securities laws. By their nature, all forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons as described in our Securities and Exchange Commission filings, including those set forth in the Risk Factors section and under the section entitled “Cautionary Statement Concerning Forward-Looking Statements” in our most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q.
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CVS HEALTH CORPORATION
Condensed Consolidated Statements of Income