Retail

CVS Health earnings top estimates as prescription volume, Covid vaccines increase

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Key Points
  • Foot traffic and front-of-store sales dropped at CVS stores because of the pandemic, but total prescription volume grew year over year.
  • Chief Executive Karen Lynch said the drug store chain will accelerate investments in a wider range of health-care services, beyond just filling prescriptions.
  • Next year, the company will reenter the individual public exchange created by the Affordable Care Act, which allows people to buy their own health insurance plans.
People walk by a CVS Pharmacy store in the Manhattan borough of New York City.
Shannon Stapleton | Reuters

CVS Health's fourth-quarter earnings beat Wall Street's expectations Tuesday as prescription volume lifted sales and the drugstore chain attracted new customers with Covid-19 testing and vaccines.

Shares of the company were down more than 4% early Tuesday.

Here's what the company reported for the fiscal fourth quarter ended Dec. 31, compared with what analysts were expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: $1.30 adjusted vs. $1.24 expected
  • Revenue: $69.55 billion vs. $68.75 billion expected

The drugstore chain reported fiscal fourth-quarter net income of $975 million, or 75 cents per share, down from $1.74 billion, or $1.33 per share, a year earlier.

Excluding items, it earned $1.30 per share, outpacing the $1.24 per share expected by analysts surveyed by Refinitiv.

Revenue rose to $69.55 billion from $66.89 billion a year earlier. That's higher than analysts' expectations of $68.75 billion.

For CVS, the pandemic has brought benefits and downsides. On the one hand, the global health crisis has caused some people to skip trips to the store and doctor's office. That has weighed on its front-of-store sales and led to fewer new prescriptions. On the other hand, fewer medical visits has led to lower expenses for CVS-owned health insurer, Aetna, which it acquired in 2018. The pandemic has also given the drugstore chain a chance to show off its health-care services, such as telemedicine and its MinuteClinic, and gain new business opportunities like drive-thru testing.

Same-store sales grew 5.3% during the three-month period compared with the same time a year earlier. They jumped by 7.5% in the pharmacy division, as prescription volume rose but were down by 1.8% in the front of store, as customers cut back on visits and did not need to buy as much flu and cold medication during the pandemic.

CVS cautioned that its fiscal first quarter will be its lowest earnings quarter for the year because of the weaker flu season and investments to its Covid vaccine program. It said its health care benefits division will have higher earnings in the first half of the year, but those will taper off and fall to their lowest in the fourth quarter.

CVS expects 2021 earnings per share will range between $6.06 and $6.22, but after adjustments it will earn between $7.39 and $7.55 per share. Its full-year cash flow from operations is projected at $12 billion to $12.5 billion.

Brian Tanquilut, a healthcare services research analyst for Jefferies, said the market's reaction on Tuesday may reflect disappointment in the company's outlook for the year. He said he expects the CVS forecast is conservative. He estimates the company has a $700 million-plus opportunity with administering Covid vaccines.

Expanding Covid vaccines

CVS is gradually taking on a larger role with the vaccines, as it gets more supply. Last week, the federal government shipped doses directly to retail pharmacies' stores — including CVS locations in 11 states.

On a Tuesday call with investors and analysts, CVS Chief Executive Karen Lynch said about 8 million consumers came to CVS for the first time because of Covid testing. She said it anticipates a similar experience with vaccines.

"We will use this opportunity to shape a health experience that demonstrates the value we bring," she said. "It will create the opportunity to expand our customer base while deepening relationships with current customers."

She described the federal program with CVS and other pharmacies as "the linchpin of the Biden administration's plan to vaccinate 300 million Americans by the end of the summer." She said CVS has the capacity to administer 20 million to 25 million doses per month, depending on supply.

CVS said it has administered about 15 million tests nationwide. It has also given more than 3 million Covid vaccines in over 40,000 long-term care facilities.

The drugstore chain and its competitor, Walgreens, struck a deal with the federal government in October to provide the shots to staff and residents at nursing homes and assisted living facilities. It began vaccinations in December and plans to complete both doses at the long-term care facilities in mid-March.

Combining its assets

As the country's largest pharmacy chain and a major insurance player, CVS has combined assets to drive sales and lower costs. It has turned more than 650 locations into HealthHubs, where people can go to manage their diabetes, meet with a therapist for behavioral health or even participate in a yoga class. Some Aetna insurance plans encourage members to go to MinuteClinics instead of other health-care provider by not charging a copay for the visits.

Lynch, the company's new CEO, brings a strong insurance background. Before stepping into the role this month, she was the leader of CVS' Aetna business. She worked for health insurer Cigna and health-care company, Magellan Health Services before joining CVS.

Next year, she said the company will reenter the individual public exchange created by the Affordable Care Act, which allows people to buy their own health insurance plans. She said it will be the company's first branded CVS Health-Aetna product. She said the exchange has stabilized and become more appealing as a profit-driver.

Lynch said CVS is accelerating investments into a wider range of services, beyond just filling prescriptions. She pointed to a program that brings kidney dialysis services into the home to reduce hospital admissions and an oncology program that matches people to clinical trials.

As of Friday's market close, CVS shares were up less than 1% over the past year. The company's stock, which has a market value of $97.13 billion, touched a 52-week high of $77.23 in mid-January. It closed at $74.21 on Friday.

Read the full press release here.

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