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Net revenues $44.5b Adjusted EPS $1.17

For the three months ended 3.31.17

Quarterly Highlights

  • Consolidated
  • Consolidated Excl
  • Retail
  • Retail Excl
  • Pharmacy Services
  • Pharmacy Services Excl
  • Corporate
  • Corporate Excl
  • Eliminations
  • In millions, except per share amounts 03.31.17 03.31.16 +/- Variance
    Net revenues $44,513.6 $43,214.7 3.0%
    Cost of revenues (1) 37,933.7 36,470.8 (4.0%)
    Gross profit 6,579.9 6,743.9 (2.4%)
    Operating expenses (2)(3) 4,787.4 4,558.9 (5.0%)
    Operating profit(3) $1,792.5 $2,185.0 (18.0%)
    Interest expense, net 252.3 283.2 10.9%
    Other expenses 6.6 9.2 27.9%
    Income before income tax provision 1,533.6 1,892.6 (19.0%)
    Income tax provision 572.0 745.7 23.3%
    Discontinued operations (8.9) (0.1) (10886.7%)
    Net income 952.7 1,146.8 (16.9%)
    Net income attributable to noncontrolling interest 0.4 0.5 NM
    Net income attributable to CVS Health 952.3 1,146.3 (16.9%)
    Earnings allocated to participating securities 4.3 6.0 29.6%
    Income available for common shareholders $948.0 $1,140.2 16.9%
    Weighted average diluted common shares outstanding 1,034.7 1,098.8 5.8%
    GAAP diluted EPS $0.92 $1.04 (10.9%)

    Totals may not foot due to rounding.

    • (1)
    • Includes $4 million of acquisition-related integration costs during the three months ended March 31, 2016 related to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (2)
    • Includes $57 million of acquisition-related integration costs and a $3 million charge related to a disputed 1999 legal settlement during the three months ended March 31, 2016. Includes $15 million of acquisition-related integration costs during the three months ended March 31, 2017. In 2016, the costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target. In 2017, the costs relate to the acquisition of Omnicare. Includes a $199 million charge primarily for noncancelable lease obligations associated with stores closed in connection with our enterprise streamlining initiative during the three months ended March 31, 2017.
    • (3)
    • Amounts revised to reflect the adoption of ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which decreased operating expenses and increased consolidated operating profit by $9 million for the three months ended March 31, 2016.
    • (4)
    • Includes $7 million of acquisition-related integration depreciation during the three months ended March 31, 2016 related to the acquisitions of Omnicare and the pharmacies and clinics of Target.
  • In millions, except per share amounts 03.31.17 03.31.16 +/- Variance
    Net revenues $44,513.6 $43,214.7 3.0%
    Cost of revenues (1) 37,933.0 36,466.9 (4.0%)
    Gross profit 6,580.6 6,747.8 (2.5%)
    Operating expenses (2)(3) $4,574.3 $4,499.0 (1.7%)
    Operating profit(3) $2,006.3 $2,248.8 (10.8%)
    Interest expense, net 252.3 283.2 10.9%
    Other expenses 6.6 9.2 0.278773817
    Income before income tax provision 1,747.4 1,956.4 (10.7%)
    Amortization 200.4 199.5 0.4%
    Adjusted net income before income tax provision 1,947.8 2,155.9 (9.7%)
    Adjusted income tax provision 734.3 847.3 13.3%
    Adjusted net income 1,213.5 1,308.6 (7.3%)
    Earnings allocated to participating securities 5.1 6.9 25.7%
    Net income attributable to noncontrolling interest 0.4 0.5 NM
    Adjusted net income attributable to CVS Health 1,208.0 1,301.2 (7.2%)
    Weighted average diluted common shares outstanding 1,034.7 1,098.8 5.8%
    Adjusted EPS from continuing operations $1.17 $1.18 (1.4%)
    Depreciation (4) 619.6 609.4 1.7%
    EBITDA $2,619.3 $2,849.0 (8.1%)

    Totals may not foot due to rounding.

    • (1)
    • Excludes $4 million of acquisition-related integration costs during the three months ended March 31, 2016 related to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (2)
    • Excludes $57 million of acquisition-related integration costs and a $3 million charge related to a disputed 1999 legal settlement during the three months ended March 31, 2016. Excludes $15 million of acquisition-related integration costs during the three months ended March 31, 2017. In 2016, the costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target. In 2017, the costs relate to the acquisition of Omnicare. Excludes a $199 million charge primarily for noncancelable lease obligations associated with stores closed in connection with our enterprise streamlining initiative during the three months ended March 31, 2017.
    • (3)
    • Amounts revised to reflect the adoption of ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which decreased operating expenses and increased consolidated operating profit by $9 million for the three months ended March 31, 2016.
    • (4)
    • Excludes $7 million of acquisition-related integration depreciation during the three months ended March 31, 2016 related to the acquisitions of Omnicare and the pharmacies and clinics of Target.
  • (In millions) 03.31.17 03.31.16 +/- Variance
    Net revenues $19,340.5 $20,111.7 (3.8%)
    Cost of revenues (1) 13,664.7 14,282.1 4.3%
    Gross profit 5,675.8 5,829.6 (2.6%)
    Operating expenses (2)(3) 4,264.8 4,045.5 (5.4%)
    Operating profit(3) $1,411.0 $1,784.1 (20.9%)
    Same-store increase (decrease): (4)      
    Total sales (4.7%) 4.2% (890) bps
    Pharmacy sales (4.7%) 5.5% (1020) bps
    Front store sales (4.9%) 0.7% (560) bps
    Total prescription volume (3.8%) 4.4% (820) bps
    Total adj. prescription volume (5) (1.4%) 5.9% (730) bps
    Net revenues increase (decrease):      
    Total (3.8%) 18.6% (2248) bps
    Pharmacy (3.8%) 23.7% (2751) bps
    Front store (3.9%) 2.6% (645) bps
    Generic dispensing rate 87.5% 85.7% 179 bps
    Rx % of net revenues 74.6% 74.6% 2 bps
    FS % of net revenues 23.9% 23.9% (1) bps
    Retail/LTC prescriptions filled 239.6 246.4 (2.7%)
    Adj. retail/LTC prescriptions filled (5) 303.1 305.1 (0.6%)

    Totals may not foot due to rounding.

    • (1)
    • Includes $4 million of acquisition-related integration costs during the three months ended March 31, 2016 related to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (2)
    • Includes $57 million of acquisition-related integration costs during the three months ended March 31, 2016. Includes $15 million of acquisition-related integration costs during the three months ended March 31, 2017. In 2016, the costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target. In 2017, the costs relate to the acquisition of Omnicare. Includes a $199 million charge primarily for noncancelable lease obligations associated with stores closed in connection with our enterprise streamlining initiative during the three months ended March 31, 2017.
    • (3)
    • Amounts revised for the three months ended March 31, 2016 to reflect the adoption of ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which decreased operating expenses and increased operating profit by $7 million.
    • (4)
    • Same store sales and prescriptions exclude revenues from MinuteClinic®, and revenue and prescriptions from stores in Brazil, LTC operations and from commercialization services.
    • (5)
    • Includes the adjustment to convert 90-day, non-specialty prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal 30-day prescription.
  • (In millions) 03.31.17 03.31.16 +/- Variance
    Net revenues $19,340.5 $20,111.7 (3.8%)
    Cost of revenues (1) 13,664.0 14,278.2 4.3%
    Gross profit 5,676.5 5,833.5 (2.7%)
    Operating expenses (2)(3) 4,051.8 3,988.9 (1.6%)
    Operating profit (3) $1,624.7 $1,844.6 (11.9%)
    Depreciation and amortization 411.2 400.9 2.5%
    EBITDA $2,030.9 $2,238.5 (9.3%)
    Same-store increase (decrease) (4):      
    Total sales (4.7%) 4.2% (890) bps
    Pharmacy sales (4.7%) 5.5% (1020) bps
    Front store sales (4.9%) 0.7% (560) bps
    Total prescription volume (3.8%) 4.4% (820) bps
    Total adj. prescription volume (5) (1.4%) 5.9% (730) bps
    Net revenues increase (decrease):      
    Total (3.8%) 18.6% (2248) bps
    Pharmacy (3.8%) 23.7% (2751) bps
    Front store (3.9%) 2.6% (645) bps
    Generic dispensing rate 87.5% 85.7% 179 bps
    Rx % of net revenues 74.6% 74.6% 2 bps
    FS % of net revenues 23.9% 23.9% (1) bps
    Retail/LTC prescriptions filled 239.6 246.4 (2.7%)
    Adj. retail/LTC prescriptions filled (5) 303.1 305.1 (0.6%)

    Totals may not foot due to rounding.

    • (1)
    • Excludes $4 million of acquisition-related integration costs during the three months ended March 31, 2016 related to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (2)
    • Excludes $57 million of acquisition-related integration costs during the three months ended March 31, 2016. Excludes $15 million of acquisition-related integration costs during the three months ended March 31, 2017. In 2016, the costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target. In 2017, the costs relate to the acquisition of Omnicare. Excludes a $199 million charge primarily for noncancelable lease obligations associated with stores closed in connection with our enterprise streamlining initiative during the three months ended March 31, 2017.
    • (3)
    • Amounts revised for the three months ended March 31, 2016 to reflect the adoption of ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which decreased operating expenses and increased operating profit by $7 million.
    • (4)
    • Same store sales and prescriptions exclude revenues from MinuteClinic®, and revenue and prescriptions from stores in Brazil, LTC operations and from commercialization services.
    • (5)
    • Includes the adjustment to convert 90-day, non-specialty prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal 30-day prescription.
  • (In millions) 03.31.17 03.31.16 +/- Variance
    Net revenues $31,222.7 $28,765.0 8.5%
    Cost of revenues 30,126.3 27,663.2 (8.9%)
    Gross profit 1,096.4 1,101.8 (0.5%)
    Operating expenses (1) 312.5 318.0 1.7%
           
    Operating profit (1) $783.9 $783.8 0.0%
    Net revenues:      
    Mail choice 10,847.7 10,149.5 6.9%
    Pharmacy network 20,301.0 18,536.3 9.5%
    Other 74.0 79.2 (6.6%)
    Pharmacy claims processed (old method):      
    Total  330.1 304.8 8.3%
    Mail choice 22.8 21.7 5.0%
    Pharmacy network 307.4 283.1 8.6%
    Total adjusted
    claims (2)
    370.6 343.7 7.8%
    Pharmacy claims processed (new method):      
    Total adjusted
    claims (3)
    440.5 401.9 9.6%
    Adjusted mail choice 63.7 61.0 4.5%
    Adjusted pharmacy network 376.8 340.9 10.5%
    Generic dispensing rate:      
    Total 87.0% 85.6% 140 bps
    Mail choice 79.2% 77.3% 190 bps
    Pharmacy network 87.7% 86.5% 120 bps
    Mail choice penetration rate (old method) (3) 17.1% 17.6% (57) bps
    Mail choice penetration rate (new method) (3) 14.5% 15.2% (71) bps

    Totals may not foot due to rounding.

    • (1)
    • Amounts revised for the three months ended March 31, 2016 to reflect the adoption of ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which decreased operating expenses and increased operating profit by $2 million.
    • (2)
    • Includes the adjustment to convert 90-day, non-specialty mail-choice prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal 30-day prescription. PBM retail claims are not adjusted.
    • (3)
    • Beginning in Q1 2017, 90-day prescriptions filled within our pharmacy networks are adjusted to the equivalent of three 30-day prescriptions.
  • (In millions) 03.31.17 03.31.16 +/- Variance
    Net revenues $31,222.7 $28,765.0 8.5%
    Cost of revenues 30,126.3 27,663.2 (8.9%)
    Gross profit 1,096.4 1,101.8 (0.5%)
    Operating expenses (1) 312.5 317.9 1.7%
    Operating profit (1) $783.9 $783.9 0.0%
    Depreciation and amortization 180.3 178.0 1.3%
    EBITDA 963.1 959.9 0.3%
    Net revenues:      
    Mail choice 10,847.7 10,149.5 6.9%
    Pharmacy network 20,301.0 18,536.3 9.5%
    Other 74.0 79.2 (6.6%)
    Pharmacy claims processed (old method):      
    Total  330.1 304.8 8.3%
    Mail choice 22.8 21.7 5.0%
    Pharmacy network 307.4 283.1 8.6%
    Total adjusted
    claims (2)
    370.6 343.7 7.8%
    Pharmacy claims processed (new method):      
    Total adjusted
    claims (3)
    440.5 401.9 9.6%
    Adjusted mail choice 63.7 61.0 4.5%
    Adjusted pharmacy network 376.8 340.9 10.5%
    Generic dispensing rate:      
    Total 87.0% 85.6% 140 bps
    Mail Choice 79.2% 77.3% 190 bps
    Pharmacy network 87.7% 86.5% 120 bps
    Mail choice penetration rate (old) (3) 17.1% 17.6% (57) bps
    Mail choice penetration rate (new) (3) 14.5% 15.2% (71) bps

    Totals may not foot due to rounding.

    • (1)
    • Amounts revised for the three months ended March 31, 2016 to reflect the adoption of ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which decreased operating expenses and increased operating profit by $2 million.
    • (2)
    • Includes the adjustment to convert 90-day, non-specialty mail-choice prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal 30-day prescription. PBM retail claims are not adjusted.
    • (3)
    • Beginning in Q1 2017, 90-day prescriptions filled within our pharmacy networks are adjusted to the equivalent of three 30-day prescriptions.
  • In millions 03.31.17 03.31.16 +/- Variance
    Net revenues N/A
    Cost of revenues N/A
    Gross profit N/A
    Operating expenses (1) 226.6 210.8 (7.5%)
    Operating profit ($226.6) ($210.8) (7.5%)

    Totals may not foot due to rounding.

    • (1)
    • Includes a $3 million charge related to a disputed 1999 legal settlement during the three months ended March 31, 2016.
  • In millions 03.31.17 03.31.16 +/- Variance
    Net revenues N/A
    Cost of revenues N/A
    Gross profit N/A
    Operating expenses (1) 226.6 207.5 (9.2%)
    Operating profit ($226.6) ($207.5) (9.2%)
    Depreciation and amortization 28.2 30.4 (7.4%)
    EBITDA ($199.4) ($177.0) (12.6%)

    Totals may not foot due to rounding.

    • (1)
    • Excludes a $3 million charge related to a disputed 1999 legal settlement during the three months ended March 31, 2016.
  • In millions 03.31.17 03.31.16 +/-
    Variance
    Net revenues ($6,135.5) ($5,271.0) (16.4%)
    Cost of revenues (5,927.7) (5,077.3) 16.7%
    Gross profit (207.8) (193.7) (7.3%)
    Operating expenses (15.6) (16.4) 4.9%
    Operating profit ($192.2) ($177.3) (8.4%)

    Totals may not foot due to rounding.

Revenues

  • item-1
  • 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.

Operating Profit

  • item-1
  • 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

  • item-1
  • 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.

Guidance

  • item-1
  • 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

  • item-1
  • 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.