CVS Health Reports Strong Fourth Quarter And Full Year Profit Growth For 2015; Confirms 2016 Guidance

Tuesday, February 9, 2016

WOONSOCKET, R.I., Feb.9, 2016 /PRNewswire/ --

Fourth Quarter Year-over-year Highlights:

  • Net revenues increased 11.0% to a record $41.1 billion
  • Operating profit increased 17.6% to $2.7 billion
  • GAAP diluted EPS from continuing operations of $1.34
  • Adjusted EPS of $1.53, an increase of 26.5%, excluding certain items (amortization, transaction and integration costs, and a $90 million charge related to a disputed 1999 legal settlement)

Full Year Highlights:

  • Net revenues increased 10.0% to a record $153.3 billion
  • Operating profit increased 7.4% to $9.5 billion
  • GAAP diluted EPS from continuing operations of $4.62
  • Adjusted EPS of $5.16, an increase of 14.8%, excluding certain items (amortization, bridge financing costs, transaction and integration costs, a $90 million charge related to a disputed 1999 legal settlement, and the 2014 loss on early extinguishment of debt)
  • Generated free cash flow of $6.5 billion; cash flow from operations of $8.4 billion

2016 Guidance:

  • Confirmed full year Adjusted EPS of $5.73 to $5.88 excluding amortization; GAAP diluted EPS from continuing operations of $5.28 to $5.43; both exclude acquisition-related integration costs
  • Confirmed first quarter Adjusted EPS of $1.14 to $1.17 excluding amortization; GAAP diluted EPS from continuing operations of $1.03 to $1.06; both exclude acquisition-related integration costs
  • Confirmed full year free cash flow of $5.3 to $5.6 billion and cash flow from operations of $7.6 to $7.9 billion

CVS Health Corporation (NYSE: CVS) today announced operating results for the three months and year ended December31, 2015.

Revenues

Net revenues for the three months ended December31, 2015 increased 11.0%, or $4.1 billion to $41.1 billion, up from $37.1 billion in the three months ended December31, 2014. For the year ended December31, 2015, total net revenues increased 10.0%, or $13.9 billion to $153.3 billion, compared to $139.4 billion for the year ended December31, 2014.

Revenues in the Pharmacy Services Segment increased 11.1% to $26.5 billion in the three months ended December31, 2015. This increase was primarily driven by growth in specialty pharmacy, which includes the impact of the Omnicare, Inc. ("Omnicare") acquisition in August 2015, and pharmacy network claims. Pharmacy network claims processed during the three months ended December31, 2015, increased 7.2% to 237.4 million, compared to 221.6 million in the prior year period. The increase in pharmacy network claim volume was primarily due to net new business. Mail choice claims processed during the three months ended December31, 2015 increased approximately 3.9% to 22.2 million, compared to 21.3 million in the prior year period. The increase in the mail choice claim volume was primarily driven by specialty and continued adoption of our Maintenance Choice offerings, partially offset by a decline in traditional mail volume. For the year ended December31, 2015, total net revenues in the Pharmacy Services Segment increased 13.5% to $100.4 billion, compared to $88.4 billion in the year ended December31, 2014.

Revenues in the Retail/LTC Segment increased 12.5% to $19.9 billion in the three months ended December31, 2015. Approximately half of the increase was driven by the addition of long-term care ("LTC") operations acquired as part of the Omnicare acquisition. Same store sales increased 3.5% over the prior year period, with pharmacy same store sales up 5.0% and front store same store sales down 0.5%. Front store same store sales were negatively impacted by softer customer traffic, partially offset by an increase in basket size. Pharmacy same store prescription volumes rose 5.0% on a 30-day equivalent basis. Pharmacy same store sales were negatively impacted by approximately 470 basis points due to recent generic introductions. For the year ended December31, 2015, total net revenues in the Retail/LTC Segment increased 6.2% to $72.0 billion, compared to $67.8 billion in the year ended December31, 2014. Same store sales increased 1.7% for the year ended December31, 2015, over the prior year, with pharmacy same store sales up 4.5% and front store same store sales down 5.0%. Front store same store sales would have been approximately 520 basis points higher if tobacco and the estimated associated basket sales were excluded from the year ended December 31, 2014.

For the three months ended December31, 2015, the generic dispensing rate increased approximately 165 basis points to 83.7% in our Pharmacy Services Segment and increased approximately 155 basis points to 84.0% in our Retail/LTC Segment, compared to the prior year.

Operating Profit and Income from Continuing Operations

For the three months ended December 31, 2015, operating profit increased $243 million in the Pharmacy Services Segment and $299 million in the Retail/LTC Segment. The Pharmacy Services Segment operating profit grew 26.8% and the Retail/LTC Segment operating profit grew 19.8%(1), excluding acquisition-related integration costs of $52 million. Both segments benefited from the Omnicare acquisition, increased generic drugs dispensing rates and favorable purchasing economics. The Pharmacy Services Segment was also positively affected by growth in specialty pharmacy and pharmacy network volume, partially offset by client price compression. The Retail/LTC Segment was also positively affected by increased sales, an improved front store margin rate, partially offset by continued reimbursement pressure. The Corporate Segment includes $20 million of acquisition-related transaction and integration costs for the three months ended December 31, 2015, related to the acquisition of Omnicare and the acquisition of the pharmacies and clinics of Target Corporation ("Target"), as well as a $90 million charge related to a legacy lawsuit challenging the 1999 settlement by MedPartners of various securities class actions and a related derivative claim.

For the year ended December 31, 2015, operating profit increased by $475 million in the Pharmacy Services Segment and by $368 million in the Retail/LTC Segment. The Pharmacy Services Segment grew 13.5% and the Retail/LTC Segment grew 6.4%(1), excluding acquisition-related integration costs of $64 million. The drivers of the increases are the same as those described for the three months ended December 31, 2015 above. The Corporate Segment includes $156 million of acquisition-related transaction and integration costs for the year ended December 31, 2015 related to the acquisition of Omnicare and the acquisition of the pharmacies and clinics of Target, as well as the $90 million legal charge.

Income from continuing operations for the three months ended December31, 2015 was $1.5 billion, an increase of $178 million or 13.4%, compared to the prior year. Income from continuing operations for the year ended December31, 2015 was $5.2 billion, an increase of $585 million or 12.6%, compared to the prior year.

Adjusted earnings per share ("Adjusted EPS") for the three months ended December31, 2015 and 2014, was $1.53 and $1.21, respectively, an increase of 26.5%. Adjusted EPS excludes $191 million and $128 million of intangible asset amortization for the three months ended December31, 2015 and 2014, respectively. Adjusted EPS also excludes $72 million of acquisition-related transaction and integration costs and the $90 million legal charge. GAAP earnings per diluted share ("GAAP EPS") for the three months ended December31, 2015 was $1.34, compared to $1.14 in the prior year.

Adjusted EPS for the years ended December 31, 2015 and 2014, was $5.16 and $4.49, respectively, an increase of 14.8%. Adjusted EPS excludes $611 million and $518 million of intangible asset amortization for the years ended December31, 2015 and 2014, respectively. Adjusted EPS in 2015 also excludes $272 million of acquisition-related bridge financing, transaction and integration costs and the $90 million legal charge, and in 2014 excludes the loss on early extinguishment of debt. GAAP EPS for the year ended December 31, 2015 was $4.62, compared to $3.96 in the prior year.

President and CEO Larry Merlo, stated, "We enjoyed a successful year in 2015, highlighted by excellent performance across our enterprise and two key acquisitions that support our strategy for growth. We grew our core business with the acquisition of Target's pharmacies and clinics and expanded our reach with the acquisition of Omnicare, the leader in long-term care pharmacy. At the same time, we achieved solid year-over-year growth in revenues, operating profit, and earnings per share. We also generated $6.4 billion in free cash flow for the full-year, exceeding our expectations. Through dividends and share repurchases, we returned more than $6 billion to our shareholders in 2015. As expected, growth in the fourth quarter was especially strong, with revenues increasing 11% and Adjusted EPS increasing 26.5%, right in line with our guidance."

Mr. Merlo continued, "We continue to win and gain share across our businesses and I'm very pleased with the outstanding PBM selling season we had for 2016, with gross client wins of $14.8 billion. Our growth in the fast-growing specialty market continues to outpace the industry. Overall, our leadership in multiple competencies enables us to provide superior value for patients, payors, and providers. We firmly believe that we have the right strategy for success in the evolving health care marketplace."

Guidance

The Company confirmed its previous guidance for the full year and first quarter of 2016. The Company expects to deliver Adjusted EPS of $5.73 to $5.88 and GAAP diluted earnings per share from continuing operations of $5.28 to $5.43 in 2016.The Company also confirmed its first quarter Adjusted EPS guidance of $1.14 to $1.17 and GAAP diluted earnings per share from continuing operations of $1.03 to $1.06. Adjusted EPS excludes intangible asset amortization and guidance also excludes the affect of acquisition-related integration costs that are expected to occur during 2016. The Company confirmed its 2016 free cash flow guidance of $5.3 to $5.6 billion, and its 2015 cash flow from operations guidance of $7.6 to $7.9 billion. These 2016 guidance estimates assume the completion of $4.0 billion in share repurchases.

Real Estate Program

During the three months ended December31, 2015, the Company opened 53 new retail stores, acquired 1,672 pharmacies and closed 14 retail stores. In addition, the Company relocated 19 retail stores. As of December31, 2015, the Company operated 9,655 retail stores, including pharmacies in Target stores, in 49 states, the District of Columbia, Puerto Rico and Brazil.

Teleconference and Webcast

The Company will be holding a conference call today for the investment community at 8:30 am (EST) to discuss its quarterly and annual 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 CVS Health
 

CVS Health is a pharmacy innovation company helping people on their path to better health. Through its approximately 9,600 retail pharmacies, more than 1,100 walk-in medical clinics, a leading pharmacy benefits manager with more than 75 million plan members, a dedicated senior pharmacy care business serving more than one million patients per year, and expanding specialty pharmacy services, 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 athttps://www.cvshealth.com.

Forward-Looking Statements

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 Form10-K and Quarterly Report on Form 10-Q.

(1) Excluding $52 million of acquisition-related integration costs, operating profit for the Retail/LTC Segment increased $351 million, or 19.8%, from $1,780 million for the three months ended December 31, 2014 to $2,131 million for the three months ended December 31, 2015. Excluding $64 million of acquisition-related integration costs, operating profit for the Retail/LTC Segment increased $432 million, or 6.4%, from $6,762 million for the year ended December 31, 2014 to $7,194 million for the year ended December 31, 2015.

-- Tables Follow -- 

CVS HEALTH CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)

CVS HEALTH CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)


CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Adjusted Earning Per Share
(Unaudited)

The Company is providing non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors' understanding of the Company's performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP.

The following is a reconciliation of income before income tax provision to Adjusted earnings per share:

Free Cash Flow
(Unaudited)

The Company defines free cash flow as net cash provided by operating activities less net additions to properties and equipment (i.e., additions to property and equipment plus proceeds from sale-leaseback transactions).

The following is a reconciliation of net cash provided by operating activities to free cash flow:

Supplemental Information
(Unaudited)

The Company evaluates its Pharmacy Services and Retail/LTC segment performance based on net revenues, gross profit and operating profit before the effect of nonrecurring charges and gains and certain intersegment activities. The Company evaluates the performance of its Corporate Segment based on operating expenses before the effect of nonrecurring charges and gains and certain intersegment activities. The following is a reconciliation of the Company's segments to the accompanying consolidated financial statements:

Supplemental Information
(Unaudited)

Pharmacy Services Segment

The following table summarizes the Pharmacy Services Segment's performance for the respective periods:

Supplemental Information
(Unaudited)

Retail/LTC Segment

The following table summarizes the Retail/LTC Segment's performance for the respective periods:

Adjusted Earnings Per Share Guidance
(Unaudited)

The following reconciliation of estimated income before income tax provision to estimated adjusted earnings per share contains forward-looking information. All forward-looking information involves risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking information 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.

Free Cash Flow Guidance
(Unaudited)

The following reconciliation of net cash provided by operating activities to free cash flow contains forward-looking information. All forward-looking information involves risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking information 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. For internal comparisons, management finds it useful to assess year-to-year cash flow performance by adjusting cash provided by operating activities, by capital expenditures and proceeds from sale-leaseback transactions.

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