Results Center

Net revenues $44.6b Operating profit $2.8b

3 months ended 09.30.16

Quarterly Highlights

  • Consolidated
  • Consolidated Excl
  • Retail
  • Retail Excl
  • Pharmacy Services
  • Pharmacy Services Excl
  • Corporate
  • Corporate Excl
  • Eliminations
  • In millions, except per share amounts 09.30.16 09.30.15 +/- Variance
    Net revenues $44,615.1 $38,643.6 15.5%
    Cost of revenues (1) 37,122.7 31,982.8 (16.1%)
    Gross profit 7,492.4 6,660.8 12.5%
    Operating expenses (2) 4,675.0 4,330.0 8.0%
    Operating profit $2,817.4 $2,330.8 20.9%
    Interest expense, net (3) 252.6 261.4 3.4%
    Loss on early extinguishment of debt and foreign currency losses(4) 101.1 0.0 NM
    Income before income tax provision 2,463.8 2,069.5 19.1%
    Income tax provision 921.4 831.9 (10.8%)
    Discontinued operations (1.1) 9.6 111.7%
    Net income 1,541.2 1,247.1 23.6%
    Net income attributable to noncontrolling interest 0.8 1.0 NM
    Net income attributable to CVS Health 1540.4 1246.2 23.6%
    Earnings allocated to participating securities (7.3) (6.4) (14.5%)
    Income available for common shareholders $1,533.1 $1,239.8 (23.7%)
    Weighted average diluted common shares outstanding 1,072.6 1,121.0 4.3%
    GAAP diluted EPS $1.43 $1.10 30.3%

    Totals may not foot due to rounding.

    • (1)
    • Includes $4.8 million and $15.0 million of acquisition-related integration costs during the three and nine months ended September 30, 2016, respectively. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (2)
    • Includes $60.0 million and $191.6 million of acquisition-related integration costs during the three and nine months ended September 30, 2016, respectively. Includes $127 million and $147 million of acquisition-related transaction and integration costs during the three and nine months ended September 30, 2015, respectively. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target. Includes a $3.1 million charge related to a disputed 1999 legal settlement during the nine months ended September 30, 2016.
    • (3)
    • Includes $16 million and $52 million of acquisition-related bridge financing costs during the three and nine months ended September 30, 2015, respectively. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (4)
    • Includes $101.1 million and $642.9 million from loss on extinguishment of debt during the three and nine months ended September 30, 2016, respectively.
  • In millions, except per share amounts 09.30.16 09.30.15 +/- Variance
    Net revenues $44,615.1 $38,643.6 15.5%
    Cost of revenues (1) 37,117.8 31,982.8 (16.1%)
    Gross profit 7,497.3 6,660.8 12.6%
    Operating expenses (2) $4,614.9 $4,203.2 (9.8%)
    Operating profit $2,882.3 $2,457.7 17.3%
    Interest expense, net (3) 252.6 245.6 (2.8%)
    Loss on early extinguishment of debt and foreign currency losses (4) 0.0 0.0 NM
    Income before income tax provision 2,629.8 2,212.1 18.9%
    Amortization 196.1 159.6 22.9%
    Adjusted net income before income tax provision 2,825.9 2,371.6 19.2%
    Adjusted income tax provision 1,062.5 932.0 (14.0%)
    Discontinued operations (1.1) 9.6 111.7%
    Adjusted net income 1,762.2 1,449.2 21.6%
    Earnings allocated to participating securities (8.4) (6.9) (21.3%)
    Net income attributable to noncontrolling interest 0.8 1.0 NM
    Adjusted net income attributable to CVS Health 1,753.0 1,441.3 21.6%
    Weighted average diluted common shares outstanding 1,072.6 1,121.0 4.3%
    Adjusted EPS from continuing operations $1.64 $1.28 28.0%
    Depreciation (3) 408.2 372.5 9.6%
    EBITDA $3,486.6 $2,989.7 16.6%

    Totals may not foot due to rounding.

    • (1)
    • Excludes $4.8 million and $15.0 million of acquisition-related integration costs during the three and nine months ended September 30, 2016, respectively. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (2)
    • Excludes $60.0 million and $191.6 million of acquisition-related integration costs during the three and nine months ended September 30, 2016, respectively. Excludes $127 million and $147 million of acquisition-related transaction and integration costs during the three and nine months ended September 30, 2015. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target. Excludes a $3.1 million charge related to a disputed 1999 legal settlement during the nine months ended September 30, 2016.
    • (3)
    • Excludes $16 million and $52 million of acquisition-related bridge financing costs during the three and nine months ended September 30, 2015, respectively. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (4)
    • Excludes $101.1 million and $642.9 million from loss on extinguishment of debt during the three months and nine months ended September 30, 2016, respectively.
    • (5)
    • Excludes $6.7 million and $21.4 million of acquisition-related integration depreciation during the three and nine months ended September 30, 2016, respectively. The depreciation relates to the acquisitions of Omnicare and the pharmacies and clinics of Target.
  • (In millions) 09.30.16 09.30.15 +/- Variance
    Net revenues $20,142.7 $17,911.7 12.5%
    Cost of revenues (1) 14,249.0 12,538.3 (13.6%)
    Gross profit 5,893.8 5,373.4 9.7%
    Operating expenses (2) 4,121.4 3,730.7 (10.5%)
    Operating profit $1,772.3 $1,642.7 7.9%
    Same-store increase (decrease): (3)      
    Total sales 2.3% 1.7% 60 bps
    Pharmacy sales 3.4% 4.6% (120) bps
    Front store sales (1.0%) (5.8%) 480 bps
    Total prescription volume 1.5% 3.2% (170) bps
    Total adj. prescription volume (4) 3.0% 4.4% (140) bps
    Net revenues increase (decrease):      
    Total 12.5% 6.9% 552 pps
    Pharmacy 15.3% 10.4% 486 pps
    Front store 0.8% (2.4%) 325 bps
    Generic dispensing rate 85.8% 84.8% 105 bps
    Rx % of net revenues 76.0% 74.1% 190 bps
    FS % of net revenues 0.2% 0.3% (260) bps
    Retail/LTC prescriptions filled 240.4 205.7 16.9%
    Adj. retail/LTC prescriptions filled (4) 302.9 258.7 17.1%

    Totals may not foot due to rounding.

    • (1)
    • Includes $4.9 million and $15.0 million of acquisition-related integration costs during the three and nine months ended September 30, 2016, respectively. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (2)
    • Includes $47.2 million and $177.2 million of acquisition-related integration costs during the three and nine months ended September 30, 2016, respectively. Includes $12 million of acquisition-related integration costs during the three and nine months ended September 30, 2015. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (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) 09.30.16 09.30.15 +/- Variance
    Net revenues $20,142.7 $17,911.7 12.5%
    Cost of revenues (1) 14,244.1 12,538.3 (13.6%)
    Gross profit 5,898.6 5,373.4 9.8%
    Operating expenses (2) 4,074.2 3,718.8 (9.6%)
    Operating profit $1,824.4 $1,654.6 10.3%
    Depreciation and amortization (3) 395.8 342.8 15.5%
    EBITDA $2,220.2 $1,997.4 11.2%
    Same-store increase (decrease) (4):      
    Total sales 2.3% 1.7% 60 bps
    Pharmacy sales 3.4% 4.6% (120) bps
    Front store sales (1.0%) (5.8%) 480 bps
    Total prescription volume 1.5% 3.2% (170) bps
    Total adj. prescription volume (5) 3.0% 4.4% (140) bps
    Net revenues increase (decrease):      
    Total 12.5% 6.9% 552 bps
    Pharmacy 15.3% 10.4% 486 bps
    Front store 0.8% (2.4%) 325 bps
    Generic dispensing rate 85.8% 84.8% 105 bps
    Rx % of net revenues 76.0% 74.1% 190 bps
    FS % of net revenues 0.2% 0.3% (260) bps
    Retail/LTC prescriptions filled 240.4 205.7 16.9%
    Adj. retail/LTC prescriptions filled (5) 302.9 258.7 17.1%

    Totals may not foot due to rounding.

    • (1)
    • Excludes $4.9 million and $15.0 million of acquisition-related integration costs during the three and nine months ended September 30, 2016, respectively. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (2)
    • Excludes $47.2 million and $177.2 million of acquisition-related integration costs during the three and nine months ended September 30, 2016, respectively. Excludes $12 million of acquisition-related integration costs during the three and nine months ended September 30, 2015. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (3)
    • Excludes $6.7 million and $21.4 million of acquisition-related integration depreciation during the three and nine months ended September 30, 2016, respectively. 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) 09.30.16 09.30.15 +/- Variance
    Net revenues $30,429.1 $25,528.3 19.2%
    Cost of revenues 28,632.4 24,060.1 (19.0%)
    Gross profit 1,796.7 1,468.2 22.4%
    Operating expenses (1) 340.0 305.8 (11.2%)
           
    Operating profit $1,456.7 $1,162.4 25.3%
    Net revenues:      
    Mail choice 10,872.2 9,735.3 11.7%
    Pharmacy network 19,468.8 15,716.2 23.9%
    Other 88.1 76.7 14.9%
    Pharmacy claims processed:      
    Total  305.0 251.0 21.5%
    Mail choice 22.4 21.9 2.5%
    Pharmacy network 282.6 229.1 23.3%
    Total adjusted claims (2) 345.3 290.3 18.9%
    Generic dispensing rate:      
    Total 85.4% 83.8% 162 bps
    Mail choice 78.5% 76.5% 202 bps
    Pharmacy network 86.0% 84.5% 148 bps
    Mail choice penetration rate 18.1% 21.1% (291) bps

    Totals may not foot due to rounding.

    • (1)
    • Includes $0.5 million of income and $0.1 million of costs during the three and nine months ended September 30, 2016, respectively, related to the acquisitions of Omnicare.
    • (2)
    • 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. PBM retail claims are not adjusted.
  • (In millions) 09.30.16 09.30.15 +/- Variance
    Net revenues $30,429.1 $25,528.3 19.2%
    Cost of revenues 28,632.4 24,060.1 (19.0%)
    Gross profit 1,796.7 1,468.2 22.4%
    Operating expenses (1) 340.5 305.7 (11.4%)
    Operating profit $1,456.2 $1,162.4 25.3%
    Depreciation and amortization 179.0 164.0 9.2%
    EBITDA 1635.2 1326.4 23.3%
    Net revenues:      
    Mail choice 10,872.2 9,735.3 11.7%
    Pharmacy network 19,468.8 15,716.2 23.9%
    Other 88.1 76.7 14.9%
    Pharmacy claims processed:      
    Total  305.0 251.0 21.5%
    Mail choice 22.4 21.9 2.5%
    Pharmacy network 282.6 229.1 23.3%
    Total adjusted claims (2) 345.3 290.3 18.9%
    Generic dispensing rate:      
    Total 85.4% 83.8% 162 bps
    Mail Choice 78.5% 76.5% 202 bps
    Pharmacy network 86.0% 84.5% 148 bps
    Mail choice penetration rate 18.1% 21.1% (291) bps

    Totals may not foot due to rounding.

    • (1)
    • Excludes $0.5 million of income and $0.1 million of costs during the three and nine months ended September 30, 2016, respectively, related to the acquisitions of Omnicare.
    • (2)
    • 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. PBM retail claims are not adjusted.
  • In millions 09.30.16 09.30.15 +/- Variance
    Net revenues N/A
    Cost of revenues N/A
    Gross profit N/A
    Operating expenses (1)(2) 228.2 308.6 26.0%
    Operating profit ($228.2) ($308.6) 26.0%

    Totals may not foot due to rounding.

    • (1)
    • Includes $13.3 million and $14.3 million in acquisition-related integration costs during the three and nine months ended September 30, 2016, respectively. Includes $115 million and $135 million of acquisition-related transaction and integration costs during the three and nine months ended September 30, 2015, respectively. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (2)
    • Includes a $3.1 million charge related to a disputed 1999 legal settlement during the nine months ended September 30, 2016.
  • In millions 09.30.16 09.30.15 +/- Variance
    Net revenues N/A
    Cost of revenues N/A
    Gross profit N/A
    Operating expenses (1)(2) 214.9 193.6 (11.0%)
    Operating profit ($214.9) ($193.6) (11.0%)
    Depreciation and amortization 29.5 25.9 14.0%
    EBITDA ($185.4) ($167.8) (10.5%)

    Totals may not foot due to rounding.

    • (1)
    • Excludes $13.3 million and $14.3 million in acquisition-related integration costs during the three and nine months ended September 30, 2016, respectively. Excludes $115 million and $135 million of acquisition-related transaction costs during the three and nine months ended September 30, 2015, respectively. The costs relate to the acquisitions of Omnicare and the pharmacies and clinics of Target.
    • (2)
    • Excludes a $3.1 million charge related to a disputed 1999 legal settlement during the nine months ended September 30, 2016.
  • In millions 09.30.16 09.30.15 +/-
    Variance
    Net revenues ($5,956.8) ($4,796.4) (24.2%)
    Cost of revenues (5,758.7) (4,615.6) 24.8%
    Gross profit (198.1) (180.7) (9.6%)
    Operating expenses (14.7) (15.0) 2.2%
    Operating profit ($183.4) ($165.7) (10.7%)

    Totals may not foot due to rounding.

Revenues

  • item-1
  • Net revenues for the three months ended September 30, 2016 increased 15.5%, or $6.0 billion, to $44.6 billion, compared to the three months ended September 30, 2015. Revenues in the Pharmacy Services Segment increased 19.2%, or $4.9 billion, to $30.4 billion in the three months ended September 30, 2016. The increase was primarily driven by increased pharmacy network claim volume and growth in specialty pharmacy. Pharmacy network claims processed during the three months ended September 30, 2016 increased 23.3% to 282.6 million, compared to 229.1 million in the prior year. The increase in pharmacy network claim volume was primarily due to the growth in net new business. Mail choice claims processed during the three months ended September 30, 2016, increased 2.5%, to 22.4 million, compared to 21.9 million in the prior year. The increase in mail choice claims was primarily driven by the continued adoption of our Maintenance Choice® offerings.

    Revenues in the Retail/LTC Segment increased 12.5%, or $2.2 billion, to approximately $20.1 billion, in the three months ended September 30, 2016. The increase was primarily driven by the addition of the long-term care ("LTC") pharmacy operations acquired as part of the acquisition of Omnicare, Inc. ("Omnicare") in August 2015, the addition of the pharmacies and clinics of Target Corporation ("Target") acquired in December 2015 and pharmacy same store sales growth. Same store sales increased 2.3% versus the third quarter of 2015. Pharmacy same store sales rose 3.4% and pharmacy same store prescription volumes rose 3.0% on a 30-day equivalent basis. Pharmacy same store sales were negatively affected by approximately 340 basis points from recent generic drug introductions. Front store same store sales decreased 1.0%, which were negatively affected by softer customer traffic partially offset by an increase in basket size.

    For the three months ended September 30, 2016, the generic dispensing rate increased approximately 160 basis points to 85.4% in the Pharmacy Services Segment and increased approximately 100 basis points to 85.8% in the Retail/LTC Segment.

Operating Profit

  • item-1
  • For the three months ended September 30, 2016, consolidated operating profit increased $486 million, or 20.9%. Excluding acquisition-related integration costs of $65 million in 2016 and acquisition-related transaction and integration costs of $127 million in 2015, consolidated operating profit increased $424 million, or 17.3%, from $2,458 million for the three months ended September 30, 2015 to $2,882 million for the three months ended September 30, 2016. For the three months ended September 30, 2016, operating profit increased $296 million, or 25.3%, to $1,458 million in the Pharmacy Services Segment and $130 million, or 7.9%, to $1,773 million in the Retail/LTC Segment. Excluding acquisition-related integration costs of $52 million and $12 million in the three months ended September 30, 2016 and 2015, respectively, the Retail/LTC Segment operating profit grew $170 million, or 10.3%, to $1,825 million for the three months ended September 30, 2016. 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 and the acquisition of Omnicare's LTC business as well as an improved front store margin rate. These positive factors for both segments were partially offset by continued pricing in the Pharmacy Services Segment and reimbursement pressure in the Retail/LTC Segment.

Net Income and Earnings Per Share

  • item-1
  • Net income for the three months ended September 30, 2016 was $1.5 billion, an increase of $294 million or 23.6%. The increase in net income is primarily due to the $486 million increase in operating profit discussed above partially offset by a $101 million loss on early extinguishment of debt. Net income also benefited, by approximately $0.05 per share, from a lower income tax rate, which was primarily due to the resolution of income tax matters previously forecasted in the fourth quarter.

    GAAP earnings per diluted share from continuing operations (“GAAP diluted EPS”) for the three months ended September 30, 2016 was $1.43, compared to $1.10 in the prior year. Adjusted earnings per share (“Adjusted EPS”) for the three months ended September 30, 2016 and 2015, was $1.64 and $1.28, respectively. Adjusted EPS excludes $197 million and $160 million of intangible asset amortization for the three months ended September 30, 2016 and 2015, respectively. Adjusted EPS for the three months ended September 30, 2016 also excludes $65 million of acquisition-related integration costs and the loss on early extinguishment of debt of $101 million. Adjusted EPS for the three months ended September 30, 2015 also excludes $127 million of acquisition-related transaction and integration costs and $16 million of acquisition-related bridge financing costs. Further detail is shown in the Adjusted Earnings Per Share reconciliation later in this release.

Guidance

  • item-1
  • The Company lowered and narrowed full year GAAP diluted EPS to $4.84 to $4.90 from $4.92 to $5.00, including acquisition-related integration costs recorded in the nine months ended September 30, 2016. The Company lowered and narrowed full year Adjusted EPS to $5.77 to $5.83 from $5.81 to $5.89. Further detail is shown in the 2016 Adjusted Earnings Per Share Guidance reconciliation attached to this release.

    In the fourth quarter of 2016, the Company expects to deliver GAAP diluted EPS of $1.52 to $1.58. The Company expects to deliver Adjusted EPS of $1.64 to $1.70. Further detail is shown in the 2016 Adjusted Earnings Per Share Guidance reconciliation attached to this release.

    The Company raised cash flow guidance for 2016 and now expects to deliver cash flow from operations of $9.3 billion to $9.5 billion and 2016 free cash flow of $6.8 billion to $7.0 billion. Further detail is shown in the 2016 Free Cash Flow Guidance reconciliation attached to this release.

    2017 Preliminary Outlook

    The Company provided a preliminary outlook for 2017. GAAP diluted EPS is expected to be in the range of $5.16 to $5.33 and Adjusted EPS is expected to be in the range of $5.77 to $5.93. Included in this outlook is the impact from the projected loss of more than 40 million retail prescriptions related to marketplace changes, including new retail pharmacy networks that are excluding CVS Pharmacy drugstores. The GAAP outlook includes the expected impact of the previously-announced termination of one of the Company’s pension plans and excludes the impact of integration costs related to the acquisition of Omnicare, which will be updated as the year progresses. Further detail is shown in the 2017 Preliminary Outlook reconciliation later in this release.

Real Estate Program

  • item-1
  • During the three months ended September 30, 2016, the Company opened 48 new retail stores and closed 6 retail stores. In addition, the Company relocated 11 retail stores. As of September 30, 2016, the Company operated 9,694 retail stores, including pharmacies in Target stores, in 49 states, the District of Columbia, Puerto Rico and Brazil.

New Share Repurchase Authorization

  • item-1
  • The share repurchase authorization approved in December 2014 is nearing completion with approximately $3.7 billion remaining. Reflecting the board's ongoing commitment to returning value to shareholders, the Company announced that, consistent with its practice, the board of directors approved a new share repurchase program for up to $15 billion of the Company's outstanding common stock. Combined with the approximately $3.7 billion that remains from the 2014 program, the Company has approximately $18.7 billion available for share repurchases. The share repurchase authorization, which is effective immediately and is expected to be completed over a multi-year period, permits the Company to effect the repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase transactions, and/or other derivative transactions.