Results Center

Net revenues $46.0b Adjusted EPS $1.71

For 3 months ended 12.31.16

Quarterly Highlights

  • Consolidated
  • Consolidated Excl
  • Retail
  • Retail Excl
  • Pharmacy Services
  • Pharmacy Services Excl
  • Corporate
  • Corporate Excl
  • Eliminations
  • In millions, except per share amounts 12.31.16 12.31.15 +/- Variance
    Net revenues $45,971.2 $41,145.6 11.7%
    Cost of revenues (1) 38,366.0 33,844.8 (13.4%)
    Gross profit 7,605.2 7,300.8 4.2%
    Operating expenses (2) 4,610.4 4,571.6 (0.8%)
    Operating profit $2,994.9 $2,729.2 9.7%
    Interest expense, net (3) 242.0 276.4 12.5%
    Loss on early extinguishment of debt and foreign currency losses 0.1 0.0 NM
    Income before income tax provision 2,752.8 2,452.8 12.2%
    Income tax provision 1,046.0 953.3 (9.7%)
    Discontinued operations (0.2) (0.1) (186.3%)
    Net income 1,706.6 1,499.4 13.8%
    Net income attributable to noncontrolling interest (0.4) 1.4 NM
    Net income attributable to CVS Health 1,707.0 1,498.0 14.0%
    Earnings allocated to participating securities 8.5 7.9 (7.5%)
    Income available for common shareholders $1,698.5 $1,490.0 (14.0%)
    Weighted average diluted common shares outstanding 1,068.7 1,113.7 4.0%
    GAAP diluted EPS $1.59 $1.34 18.8%

    Totals may not foot due to rounding.

    • (1)
    • Includes $31 million and $46 million of acquisition-related integration costs during the three months and year ended December 31, 2016, respectively. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (2)
    • Includes $53 million and $245 million of acquisition-related integration costs during the three months and year ended December 31, 2016, respectively. Includes $72 million and $220 million of acquisition-related transaction and integration costs during the three months and year ended December 31, 2015, respectively. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target. Includes $34 million for an asset impairment charge in connection with store rationalization for our enterprise streamlining initiative and an $88 million reversal of a legal accrual in connection with a legal settlement during the three months and year ended December 31, 2016. Includes a $3 million charge related to a disputed 1999 legal settlement during the year ended December 31, 2016. Includes a $90 million charge related to a disputed 1999 legal settlement during the three months and year ended December 31, 2015.
    • (3)
    • Includes $52 million of acquisition-related bridge financing costs during the year ended December 31, 2015.
  • In millions, except per share amounts 12.31.16 12.31.15 +/- Variance
    Net revenues $45,971.2 $41,145.6 11.7%
    Cost of revenues (1) 38,335.6 33,844.8 (13.3%)
    Gross profit 7,635.6 7,300.8 4.6%
    Operating expenses (2) $4,610.6 $4,409.5 (4.6%)
    Operating profit $3,025.0 $2,891.3 4.6%
    Interest expense, net (3) 242.0 276.4 12.5%
    Loss on early extinguishment of debt and foreign currency losses 0.0 0.0 NM
    Income before income tax provision 2,783.0 2,614.9 6.4%
    Amortization 202.6 191.5 5.8%
    Adjusted net income before income tax provision 2,985.6 2,806.3 6.4%
    Adjusted income tax provision 1,149.2 1,092.2 (5.2%)
    Discontinued operations (0.2) (0.1) (186.3%)
    Adjusted net income 1,836.2 1,714.1 7.1%
    Earnings allocated to participating securities (9.1) (8.5) (7.8%)
    Net income attributable to noncontrolling interest (0.4) 1.4 NM
    Adjusted net income attributable to CVS Health 1,827.5 1,704.2 7.2%
    Weighted average diluted common shares outstanding 1,068.7 1,113.7 4.0%
    Adjusted EPS from continuing operations $1.71 $1.53 11.8%
    Depreciation (4) 417.5 379.1 10.1%
    EBITDA $3,645.2 $3,461.9 5.3%

    Totals may not foot due to rounding.

    • (1)
    • Excludes $31 million and $46 million of acquisition-related integration costs during the three months and year ended December 31, 2016, respectively. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (2)
    • Excludes $53 million and $245 million of acquisition-related integration costs during the three months and year ended December 31, 2016, respectively. Excludes $72 million and $220 million of acquisition-related transaction and integration costs during the three months and year ended December 31, 2015, respectively. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target. Excludes a $90 million charge related to a disputed 1999 legal settlement during both the three months and year ended December 31, 2015. Excludes a $3 million charge related to a disputed 1999 legal settlement during the year ended December 31, 2016. Excludes a $34 million asset impairment charge in connection with 2017 planned store closures related to our enterprise streamlining initiative and $88 million reversal of a legal accrual in connection with a legal settlement during both the three months and the year ended December 31, 2016.
    • (3)
    • Excludes $52 million of acquisition-related bridge financing costs during the year ended December 31, 2015.
    • (4)
    • Excludes $8 million and $30 million of acquisition-related integration depreciation during the three months and year ended December 31, 2016, respectively. Excludes $11 million of acquisition-related integration depreciation during the three months and year ended December 31, 2015. The depreciation relates to the acquisitions of Omnicare and the pharmacies and clinics of Target.
  • (In millions) 12.31.16 12.31.15 +/- Variance
    Net revenues $20,847.4 $19,902.7 4.7%
    Cost of revenues (1) 14,669.3 13,900.4 (5.5%)
    Gross profit 6,178.1 6,002.3 2.9%
    Operating expenses (2) 4,151.7 3,922.8 (5.8%)
    Operating profit $2,026.4 $2,079.5 (2.6%)
    Same-store increase (decrease): (3)      
    Total sales (0.7%) 3.5% (420) bps
    Pharmacy sales 0.2% 5.0% (480) bps
    Front store sales (2.9%) (0.5%) (240) bps
    Total prescription volume 0.2% 3.2% (300) bps
    Total adj. prescription volume (4) 2.0% 5.0% (300) bps
    Net revenues increase (decrease):      
    Total 4.7% 12.5% (771) bps
    Pharmacy 5.7% 16.7% (1101) bps
    Front store (1.3%) 1.2% (251) bps
    Generic dispensing rate 85.2% 84.0% 119 bps
    Rx % of net revenues 74.6% 73.9% 68 bps
    FS % of net revenues 23.9% 25.4% (150) bps
    Retail/LTC prescriptions filled 248.8 231.5 7.5%
    Adj. retail/LTC prescriptions filled (4) 314.7 287.5 9.5%

    Totals may not foot due to rounding.

    • (1)
    • Includes $31 million and $46 million of acquisition-related integration costs during the three months and year ended December 31, 2016, respectively. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (2)
    • Includes $56 million and $235 million of acquisition-related integration costs during the three months and year ended December 31, 2016, respectively. Includes $52 million and $64 million of acquisition-related integration costs during the three months and year ended December 31, 2015, respectively. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target. Includes a $34 million asset impairment charge in connection with 2017 planned store closures related to our enterprise streamlining initiative during both the three months and year ended December 31, 2016.
    • (3)
    • Same store sales and prescriptions exclude revenues from MinuteClinic®, and revenue and prescriptions from stores in Brazil, LTC operations and from commercialization services.
    • (4)
    • 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) 12.31.16 12.31.15 +/- Variance
    Net revenues $20,847.4 $19,902.7 4.7%
    Cost of revenues (1) 14,638.9 13,900.4 (5.3%)
    Gross profit 6,208.5 6,002.3 3.4%
    Operating expenses (2) 4,060.8 3,870.7 (4.9%)
    Operating profit $2,147.7 $2,131.6 0.8%
    Depreciation and amortization (3) 411.8 373.2 10.3%
    EBITDA $2,559.5 $2,504.8 2.2%
    Same-store increase (decrease) (4):      
    Total sales (0.7%) 3.5% (420) bps
    Pharmacy sales 0.2% 5.0% (480) bps
    Front store sales (2.9%) (0.5%) (240) bps
    Total prescription volume 0.2% 3.2% (300) bps
    Total adj. prescription volume (5) 2.0% 5.0% (300) bps
    Net revenues increase (decrease):      
    Total 4.7% 12.5% (771) bps
    Pharmacy 5.7% 16.7% (1101) bps
    Front store (1.3%) 1.2% (251) bps
    Generic dispensing rate 85.2% 84.0% 119 bps
    Rx % of net revenues 74.6% 73.9% 68 bps
    FS % of net revenues 23.9% 25.4% (150) bps
    Retail/LTC prescriptions filled 248.8 231.5 7.5%
    Adj. retail/LTC prescriptions filled (5) 314.7 287.5 9.5%

    Totals may not foot due to rounding.

    • (1)
    • Excludes $31 million and $46 million of acquisition-related integration costs during the three months and year ended December 31, 2016, respectively. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (2)
    • Excludes $56 million and $235 million of acquisition-related integration costs during the three months and year ended December 31, 2016, respectively. Excludes $52 million and $64 million of acquisition-related integration costs during the three months and year ended December 31, 2015, respectively. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target. Excludes a $34 million asset impairment charge in connection with 2017 planned store closures related to our enterprise streamlining initiative during both the three months and year ended December 31, 2016.
    • (3)
    • Excludes $8 million and $30 million of acquisition-related integration depreciation during the three months and year ended December 31, 2016, respectively. Excludes $11 million of acquisition-related integration depreciation during both the three months and year ended December 31, 2015. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (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) 12.31.16 12.31.15 +/- Variance
    Net revenues $31,259.3 $26,513.9 17.9%
    Cost of revenues 29,624.4 25,021.8 (18.4%)
    Gross profit 1,634.9 1,492.2 9.6%
    Operating expenses (1) 241.0 339.9 29.1%
           
    Operating profit $1,393.9 $1,152.2 21.0%
    Net revenues:      
    Mail choice 11,115.2 10,235.4 8.6%
    Pharmacy network 20,065.2 16,197.5 23.9%
    Other 78.9 81.0 (2.5%)
    Pharmacy claims processed (old method):      
    Total  317.5 259.6 22.3%
    Mail choice 23.2 22.2 4.7%
    Pharmacy network 294.3 237.5 23.9%
    Total adjusted
    claims (2)
    359.0 299.5 19.9%
    Pharmacy claims processed (new method):      
    Total adjusted
    claims (3)
    425.4 341.3 24.6%
    Adjusted mail choice 65.2 62.3 4.5%
    Adjusted pharmacy network 360.2 279.0 29.1%
    Generic dispensing rate:      
    Total 85.4% 83.7% 168 bps
    Mail choice 78.9% 76.5% 237 bps
    Pharmacy network 85.9% 84.4% 149 bps
    Mail choice penetration rate (3) 18.0% 20.7% (266) bps

    Totals may not foot due to rounding.

    • (1)
    • Includes an $88 million reversal of legal accrual in connection with legal settlement during the three months and year ended December 31, 2016. Includes $87 thousand and $129 thousand of acquisition-related integration costs during the three months and year ended, respectively, December 31, 2015. The integration costs relate to the acquisition of Omnicare.
    • (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 will be adjusted to the equivalent of three 30-day prescriptions. Under this new methodology, the mail choice penetration rate for Q4 2016 was 15.3%.
  • (In millions) 12.31.16 12.31.15 +/- Variance
    Net revenues $31,259.3 $26,513.9 17.9%
    Cost of revenues 29,624.4 25,021.8 (18.4%)
    Gross profit 1,634.9 1,492.2 9.6%
    Operating expenses (1) 329.0 339.9 3.2%
    Operating profit $1,305.9 $1,152.3 13.3%
    Depreciation and amortization 178.9 170.2 5.1%
    EBITDA 1,484.8 1,322.5 12.3%
    Net revenues:      
    Mail choice 11,115.2 10,235.4 8.6%
    Pharmacy network 20,065.2 16,197.5 23.9%
    Other 78.9 81.0 (2.5%)
    Pharmacy claims processed (old method):      
    Total  317.5 259.6 22.3%
    Mail choice 23.2 22.2 4.7%
    Pharmacy network 294.3 237.5 23.9%
    Total adjusted
    claims (2)
    359.0 299.5 19.9%
    Pharmacy claims processed (new method):      
    Total adjusted
    claims (3)
    425.4 341.3 24.6%
    Adjusted mail choice 65.2 62.3 4.5%
    Adjusted pharmacy network 360.2 279.0 29.1%
    Generic dispensing rate:      
    Total 85.4% 83.7% 168 bps
    Mail Choice 78.9% 76.5% 237 bps
    Pharmacy network 85.9% 84.4% 149 bps
    Mail choice penetration rate (3) 18.0% 20.7% (266) bps

    Totals may not foot due to rounding.

    • (1)
    • Excludes $88 million for a reserval of a legal accrual in connection with a legal settlement during the three months and year ended December 31, 2016. Excludes $87 thousand and $129 thousand of acquisition-related integration costs during the three months and year ended, respectively, December 31, 2015. The integration costs relate to the acquisition of Omnicare.
    • (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 will be adjusted to the equivalent of three 30-day prescriptions. Under this new methodology, the mail choice penetration rate for Q4 2016 was 15.3%.
  • In millions 12.31.16 12.31.15 +/- Variance
    Net revenues N/A
    Cost of revenues N/A
    Gross profit N/A
    Operating expenses (1)(2) 233.3 325.2 28.3%
    Operating profit ($233.3) ($325.2) 28.3%

    Totals may not foot due to rounding.

    • (1)
    • Includes income of $3 million and expense of $10 million of acquisition-related integration costs during the three months and year ended December 31, 2016, respectively. Includes $20 million and $156 million in acquisition-related transaction and integration costs during the three months and year ended December 31, 2015, respectively. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (2)
    • Includes a $3 million charge related to a disputed 1999 legal settlement during the year ended December 31, 2016. Includes a $90 million charge related to a disputed 1999 legal settlement during both the three months and year ended December 31, 2015.
  • In millions 12.31.16 12.31.15 +/- Variance
    Net revenues N/A
    Cost of revenues N/A
    Gross profit N/A
    Operating expenses (1)(2) 236.3 215.3 (9.8%)
    Operating profit ($236.3) ($215.3) (9.8%)
    Depreciation and amortization 29.4 27.1 8.3%
    EBITDA ($206.9) ($188.1) (10.0%)

    Totals may not foot due to rounding.

    • (1)
    • Excludes income of $3 million and expense of $10 million of acquisition-related integration costs during the three months and year ended December 31, 2016, respectively. Excludes $20 million and $156 million in acquisition-related transaction and integration costs during the three months and year ended December 31, 2015, respectively. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (2)
    • Excludes a $3 million charge related to a disputed 1999 legal settlement during the year ended December 31, 2016. Excludes a $90 million charge related to a disputed 1999 legal settlement during both the three months and year ended December 31, 2015.
  • In millions 12.31.16 12.31.15 +/-
    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 December 31, 2016 increased 11.7%, or $4.8 billion, to $46.0 billion, up from $41.1 billion in the three months ended December 31, 2015. For the year ended December 31, 2016, net revenues increased 15.8%, or $24.2 billion, to $177.5 billion, compared to $153.3 billion for the year ended December 31, 2015.

    Revenues in the Pharmacy Services Segment increased 17.9% to $31.3 billion in the three months ended December 31, 2016. This increase was primarily driven by growth in pharmacy network and specialty pharmacy claims. Pharmacy network claims processed during the three months ended December 31, 2016, increased 23.9% to 294.3 million, compared to 237.4 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 December 31, 2016, increased 4.7% to 23.2 million, compared to 22.2 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, partially offset by a decline in traditional mail volume. For the year ended December 31, 2016, net revenues in the Pharmacy Services Segment increased 19.5% to $120.0 billion, compared to $100.4 billion in the year ended December 31, 2015.

    Revenues in the Retail/LTC Segment increased 4.7% to $20.8 billion in the three months ended December 31, 2016. The increase was largely driven by the addition of the pharmacies of Target Corporation (“Target”), which were acquired in December 2015. Pharmacy same store prescription volumes rose 2.0% on a 30-day equivalent basis. Same store sales decreased 0.7% versus the prior year, with pharmacy same store sales up 0.2% and front store same store sales down 2.9%. Front store same store sales were negatively impacted by softer customer traffic and efforts to rationalize promotional strategies, partially offset by an increase in basket size. Pharmacy same store sales were negatively impacted for the quarter by approximately 380 basis points due to recent generic introductions.

    For the year ended December 31, 2016, net revenues in the Retail/LTC Segment increased 12.6% to $81.1 billion, compared to $72.0 billion in the year ended December 31, 2015. Pharmacy same store prescription volumes rose 3.6% on a 30-day equivalent basis. Same store sales increased 1.9% for the year ended December 31, 2016, over the prior year, with pharmacy same store sales up 3.2% and front store same store sales down 1.5%.

    For the three months ended December 31, 2016, the generic dispensing rate increased approximately 170 basis points to 85.4% in our Pharmacy Services Segment and increased approximately 120 basis points to 85.2% in our Retail/LTC Segment, compared to the prior year.

Operating Profit

  • item-1
  • For the three months ended December 31, 2016, consolidated operating profit increased $266 million. Operating profit for the quarter increased $242 million in the Pharmacy Services Segment and decreased $53 million in the Retail/LTC Segment. The Pharmacy Services Segment operating profit includes the favorable impact of a reversal of an accrual of $88 million in connection with a legal settlement. The Retail/LTC Segment operating profit includes acquisition-related integration costs of $87 million in 2016 versus $52 million in 2015 and an asset impairment charge of $34 million in 2016 recorded in connection with our 2017 store rationalization. Both segments benefited from increased generic drugs dispensed. The Pharmacy Services Segment was also positively affected by growth in specialty pharmacy, growth in Medicare Part D lives and favorable purchasing economics. The Retail/LTC Segment was also positively affected by the acquisition of the pharmacies and clinics of Target as well as an improved front store margin rate. These positive factors for both segments were partially offset by continued price compression in the Pharmacy Services Segment and reimbursement pressure in the Retail/LTC Segment. Corporate Segment operating expenses decreased $92 million from the prior year primarily due to the $90 million legal charge in the prior year associated with a disputed 1999 legal settlement.

    For the year ended December 31, 2016, consolidated operating profit increased $884 million. Operating profit for the year increased by $683 million in the Pharmacy Services Segment and $151 million in the Retail/LTC Segment. The Pharmacy Services Segment operating profit includes the favorable legal matter discussed previously. The Retail/LTC Segment includes acquisition-related integration costs of $281 million in 2016 versus $64 million in 2015 and an asset impairment charge in 2016 of $34 million. The drivers of the increases are the same as those described above for the three months ended December 31, 2016, as well as the acquisition of Omnicare, Inc. (“Omnicare”) in August 2015. Corporate Segment operating expenses decreased $143 million during the year ended December 31, 2016, primarily due to a decrease in acquisition-related transaction and integration costs of $146 million, an $87 million decrease in legal charges associated with a disputed 1999 legal settlement, partially offset by operating expense increases associated with the 2015 acquisitions of Omnicare and the pharmacies and clinics of Target, as well as increases in legal and strategic initiative costs.

Net Income and Earnings Per Share

  • item-1
  • Net income for the three months ended December 31, 2016 was $1.7 billion, an increase of $208 million or 13.8%. The increase in net income is primarily due to the $266 million increase in operating profit discussed above. Net income for the year ended December 31, 2016 was $5.3 billion, an increase of $80 million or 1.5%. The increase is primarily driven by the $884 million increase in operating profit discussed above, partially offset by the $643 million loss on early extinguishment of debt and an increase in interest expense of $220 million due to higher net borrowings during the year associated with the July 2015 $15 billion debt issuance. The Company benefited from a lower effective income tax rate in the fourth quarter of 38.0% versus 38.9% in the prior year period, and 38.4% for the year ended December 31, 2016 versus 39.3% in the prior year. The lower effective income tax rates were primarily due to the resolution of income tax matters in open tax years through 2012, as well as other permanent items.

    GAAP earnings per diluted share from continuing operations (“GAAP diluted EPS”) for the three months ended December 31, 2016 was $1.59 compared to $1.34 in the prior year. Adjusted earnings per share (“Adjusted EPS”) for the three months ended December 31, 2016 and 2015, was $1.71 and $1.53, respectively. Further detail is shown in the Adjusted Earnings Per Share reconciliation later in this release.

    GAAP diluted EPS for the year ended December 31, 2016 was $4.91 compared to $4.62 in the prior year. Adjusted EPS for the year ended December 31, 2016 and 2015, was $5.84 and $5.16, 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 first quarter of 2017. The Company expects 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 $0.82 to $0.88 and Adjusted EPS of $1.07 to $1.13 in the first 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 December 31, 2016, the Company opened 40 new retail stores and closed 25 retail stores. In addition, the Company relocated 16 retail stores. As of December 31, 2016, the Company operated 9,709 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 approximately 70 retail stores during 2017 and expects to take a charge of approximately $225 million associated with the remaining lease obligations of such stores. The vast majority of the store closures are expected to occur in the three months ending March 31, 2017. In connection with such anticipated store closures, the Company recorded a $34 million asset impairment charge in the three months ended December 31, 2016.