CVS Health Corp (NYSE:CVS) beat earnings estimates in its second-quarter report, but missed on revenue and seemed to issue light guidance. Still, CVS stock is up to the tune of some 5%.
Looking through the report, CVS said it earned $1.42 billion, 1.32 cents per share, on revenue of $43.73 billion. Analysts had expected $1.30 per share in earnings on $44.23 billion in revenue.
CVS also lowered its earnings guidance for the full year, to $4.92 to $5 per share from $5.24 to $5.39. Excluding acquisition costs, however, and the repayment of debt, the company said its guidance was raised, to $5.81 to 5.89, compared with $5.73 to 5.88 previously.
Over the past year the company acquired Omnicare, which serves nursing homes and senior centers, as well as the pharmacies inside Target Corporation (NYSE:TGT) stores.
This may be why CVS stock fell when the earnings release came out, but then jumped back up. As the conference call at 8:30 a.m. began, CVS shares were at $95.46, up nearly $2/share. Shares of CVS were already down 17% for the past year, while the market as a whole is up, and many pessimists had already sold. The company also pleased investors by continuing its dividend of 43 cents and its share buyback plan.
The Health of CVS’ Acquisitions
The company credited Omnicare and the Target stores for raising year-over-year revenues by 16%. Same-store sales in CVS pharmacies were up just 2.1%. Those results were blamed on the introductions of new generic drugs.
An early Easter also meant that those holiday sales were made in the first quarter rather than the second, so “front store” sales were down 2.5%. Same store sales, however, excluded results from its MinuteClinic outlets, which provide front-line medical services.
Management said that, when the $81 million cost of integrating the new units is taken out, operating profit rose 6.5% from a year ago. CVS now combines its numbers from retail stores and Omnicare into a Retail/LTC segment, and said it continues to face pricing and reimbursement pressure, offset by growth in specialty pharmaceuticals, better purchasing economics and more patients covered under Medicare Part D.
CVS, AKA Mr. Nice Guy
Since making the decision to take tobacco out of its stores and rebrand itself as CVS Health in 2014 (a move it completed last year), the company has tried to bill itself as a patient advocate, doing things like offering Naloxone over the counter to combat opioid overdoses. What’s more, CVS even offers it at a discount.
The company is also adding healthier snacks, generating goodwill in “food deserts” like urban Detroit where such items are rare.
On the other hand, the stores’ high profile in city and suburban centers can make them a magnet for thieves. Stores in Memphis, the Atlanta suburbs and Ft. Worth, Texas were recently robbed at gunpoint, generating local headlines.
CVS Stock: The Earnings Call
President Larry Merlo called the results “strong.” He said the company was raising its free cash flow estimate for the year by $1 billion, and that pharmacy same-store sales were up 3.9%, offset by “front of store” sales declining 2.5%. Non-pharmacy revenues represent 11% of the company’s total revenue.
Management’s tone on the call was highly optimistic, with Merlo and CFO Dave Denton emphasizing increases in its Caremark Pharmacy Benefit Management (PBM) business, especially its specialty pharmacy that delivers high-cost drugs and ensures compliance, for better results this year and next.
Merlo said the company now serves 11.3 million Medicare Part D patients, and emphasized the integration of various units, with CVS Pharmacies now serving emergency scrips to nursing homes served by Omnicare, and MinuteClinics increasing their sales by 15.2%
By the time the call ended, CVS stock was up another 50 cents, and shares are currently going for upward of $97.
Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in CVS.
