Dive Brief:
- CVS Health handily beat analyst expectations for its Q4 results, posting adjusted earnings per share of $1.92 ($1.89 expected), and revenues of $48.39 billion (beating expectations by $850 million), an increase of 5.3% year-over-year, according to Seeking Alpha.
- Two months after revealing its bid to buy Aetna, the company is shifting its 2018 guidance for adjusted operating profit growth from down 1.5% to up 1.5% to reflect the effects of the recently passed tax bill. For Q1, the company moved its projected adjusted operating profit growth from 0.5% to 4.5%.
- EVP and CFO David Denton said CVS will use at least half of the the $1.2 billion in cash benefits on debt reduction to lower the company's leverage ratio. A portion of the remainder will be used on investments in benefits and wages for employees, new capabilities in data analytics, care management solutions and service offerings aimed at lowering healthcare costs, according to Denton.
Dive Insight:
CVS is awaiting regulatory approval of its $69 billion Aetna bid. The company announced last week that the U.S. Department of Justice is asking for more information about the deal. CEO Larry Merlo said on the company's Q4 earnings call that "nothing that has surfaced" has come as a surprise, adding that he still expects the deal to close in the second half of 2018.
“We enter 2018 with the foundation to propel us to win across all of our businesses. I'm very pleased with the strong PBM selling season we had, with gross client wins of $6.2 billion, and our retail collaborations are expected to drive solid performance in our pharmacies," Merlo said.
CVS said it will spend $425 million annually to increase employee wages and benefits as a result of the GOP tax overhaul. The company will increase the starting wage for employees to $11 per hour in April. It will also adjust pay for retail pharmacy technicians, front store associates and other employees later in the year "to ensure a competitive compensation structure that supports the company's plans to evolve its retail stores into a health care destination."
The healthcare industry is closely watching that planned evolution. The CVS-Aetna pact in early December was a bombshell. It represents a vertical integration meant to achieve the long-held, elusive goals of streamlining care to lower costs and getting patients more involved in and pleased with their care.
It was followed by a string of other high-profile M&A announcements as healthcare companies brace for continuing financial pressures.
In response to a question about the mega-merger announcement in January from Amazon, J.P. Morgan and Berkshire Hathaway, Menlo said he agreed with that partnership's goals.
"We've talked about the fact that we want this new CVS-Aetna combination to be an open source model that as we build out these capabilities, we can make them broadly available in the market," he said. "We're looking forward to partnering with all groups of individuals, including this new combination of Berkshire, J.P. Morgan and Amazon."
CVS said it is also launching a paid parental leave program in April for full-time employees to take four weeks of leave. It also says it will not increase employee premiums for those on the company plan for the 2018-2019 plan year.
The company said Q4 results are driven by rising pharmacy-services segment sales offsetting average retail growth. Revenues for CVS pharmacy service segment increased 9.3% to $34.2 billion in Q4, driven by growth in pharmacy network and specialty pharmacy volume. The retail segment logged a 0.3% increase to about $20.9 billion in Q4, with an increase of same store prescriptions of 2.5% offset by increases in generic dispensing and reimbursement pressure.