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WOONSOCKET, R.I. — CVS Health saw sales climb by double digits in the fourth quarter and year-end revenue grow by nearly 10% for 2014, with adjusted earnings per share (EPS) in line with Wall Street’s forecast.
CVS Health saw sales climb by double digits in the fourth quarter and year-end revenue grow by nearly 10% for 2014, with adjusted earnings per share (EPS) in line with Wall Street’s forecast.
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CVS said Tuesday that for the fourth quarter ended Dec. 31, sales totaled $37.1 billion, up 12.9% from $32.8 billion a year earlier.
For the year, overall revenue rose 9.9% to $139.4 billion in 2014 from $126.8 billion in 2013.
Sales in CVS’ retail pharmacy segment edged up 2.9% to $17.7 billion in the fourth quarter from $17.19 billion in the prior-year period. Same-store sales rose 1.6% year over year, including a gain of 5.5% in the pharmacy and a decrease of 7.2% in the front end.
CVS noted that the fourth-quarter comparable-store sales decline in the front end reflected a negative impact of 800 basis points from the company’s removal of tobacco products from all CVS/pharmacy stores as of September, as well as the loss of related basket sales. Same-store sales in the front end also negatively impacted by softer customer traffic, partially offset by growth in basket size, the company said.
Comparable pharmacy sales in the fourth quarter reflect negative impacts of 150 basis points from introductions of new generic drugs and 190 basis points from the launch of the Specialty Connect program, which shifted all specialty drug prescriptions to CVS’ pharmacy services segment, where they are now processed through the company’s specialty mail-order pharmacies.
On a same-store basis, prescription count in the quarter increased 5.3% on a 30-day equivalent basis. CVS said the implementation of Specialty Connect had more of an impact on sales than prescription volumes because of the higher dollar value of specialty medications.
For 2014, sales at CVS’ retail drug store business rose 3.3% to $67.8 billion from $65.62 billion in 2013. Same-store sales grew 2.1%, including an increase of 4.8% in the pharmacy and a decline of 4% in the front end. CVS said the removal of tobacco products and loss of associated sales negatively impact front-end comp-store sales by 350 basis points for 2014.
In the pharmacy services, or pharmacy benefit management (PBM), segment, revenue jumped 21.7% in the fourth quarter to $23.9 billion from $19.62 billion a year earlier. CVS said the gain stems mainly from growth in specialty pharmacy, including the acquisition of Coram and the impact of Specialty Connect, and higher volume in pharmacy network claims.
Full-year 2014 sales for CVS’ PBM business surged 16.1% to $88.44 billion from compared to $76.21 billion in 2013.
CVS reported that for the 2014 fourth quarter, the generic dispensing rate increased 140 basis points to 82.4% in its retail drug store segment and was up 125 basis points to 82.1% in its PBM segment.
"By any measure, 2014 was a great year for our company," CVS Health president and chief executive officer Larry Merlo said in a statement. "We delivered strong financial performance, with solid year-over-year growth in revenues, operating profit, earnings per share and cash flow. Our performance in the fourth quarter was no exception, with adjusted EPS increasing 8.4%, coming in at the high end of our expectations. At the same time, we generated free cash flow for the full-year of $6.5 billion, exceeding our expectations."
Merlo added that the company’s 2014 performance reflects its unique business model — an integrated retail pharmacy chain, PBM, retail clinic operation and specialy pharmacy — as well as its successful retail and health care strategies.
"Our results underscore the fact that we are winning in the marketplace and, as a result, driving solid and sustainable growth," he stated. "I’m pleased with the very successful [PBM] selling season we had for 2015, with gross client wins of $7 billion and net new client business of $3.6 billion. 2014 will be remembered as the year in which we rebranded our company as CVS Health and made the right decision to exit the tobacco category, better aligning our company with patients, payers and providers. Only CVS Health has an integrated enterprise model bringing differentiated, channel-agnostic solutions to the marketplace."
On the earnings side, CVS reported 2014 fourth-quarter net income of $1.32 billion, or $1.14 per diluted share, compared with nearly $1.27 billion, or $1.05 per diluted share, in the year-ago quarter. Adjusted EPS for the fourth quarter was $1.21 versus $1.12 a year earlier.
CVS said adjusted EPS excludes $128 million and $124 million of intangible asset amortization related to acquisition activity for the 2014 and 2013 fourth quarters, respectively.
On average, analysts projected CVS’ fourth-quarter adjusted EPS at $1.20, with estimates ranging from $1.19 to $1.24, according to Thomson Financial.
Net earnings for 2014 totaled $4.64 billion, or $3.96 per diluted share, up 1.2% from $4.59 billion, or $3.75 per diluted share, in 2014. CVS noted that 2014 net income includes a $521 million pretax loss, or 27 cents per share, on early extinguishment of debt. Excluding the loss on early extinguishment of debt and a $72 million pretax gain, or 4 cents per share, from a legal settlement in 2013, net income for the year rose 9%, the company said.
Adjusted EPS for 2014 and 2013 was $4.22 and $4.00, respectively. CVS said that excluding the 2014 loss on early extinguishment of debt and the 2013 gain from the legal settlement, adjusted EPS for 2014 gained 13.5% to $4.49. The company noted that adjusted EPS excludes $518 million and $494 million of acquisition-related intangible asset amortization for 2014 and 2013, respectively.
Wall Street’s consensus adjusted EPS forecast for CVS in 2014 was $4.50, with projections running from $4.48 to $4.53, according to Thomson Financial.
Looking ahead to 2015, CVS projects adjusted EPS of $5.05 to $5.19 and GAAP diluted EPS from continuing operations of $4.77 to $4.91. Analysts, on average, peg CVS’ 2015 adjusted EPS at $5.15, with estimates ranging from $5.10 to $5.20.
CVS also confirmed its first-quarter 2015 adjusted EPS guidance of $1.06 to $1.09 (99 cents to $1.02 on a GAAP basis). Wall Street’s average estimate for CVS’ first-quarter adjusted EPS is $1.09, with projections running from $1.06 to $1.21.
During the fourth quarter, CVS opened 50 new retail drug stores, relocated 30 stores and closed seven stores. As of Dec.31, the company operated 7,981 locations in 47 states, the District of Columbia, Puerto Rico and Brazil, including 7,822 retail drug stores, 17 on-site pharmacies, 27 retail specialty pharmacy stores, 11 specialty mail-order pharmacies, four mail-service dispensing pharmacies, and 86 branches and six centers of excellence for infusion and enteral services.
