CVS meets 4Q profit forecasts, reaffirms 2016 outlook

Acquisitions helped CVS Health’s fourth-quarter profit climb 13 per cent, and leaders of the drugstore operator and pharmacy benefits manager said Tuesday that they expect to reap more gains from their deal making later this year.

The Woonsocket, Rhode Island, company spent more than $10 billion to buy pharmaceutical distributor Omnicare in a deal that closed last summer and about $1.9 billion to take over the pharmacy and clinic business of retail giant Target Corp.

The Omnicare deal gave CVS Health national reach in dispensing prescription drugs to assisted living and skilled nursing homes, long-term care facilities, hospitals and other care providers. The gains from Target promise to do the same on the retail side, pushing East Coast-centric CVS Health’s presence into several markets west of the Mississippi.

CVS Health said Tuesday that Omnicare helped both its businesses in the fourth quarter, and it expects its return from that deal to grow after it implements programs that manage costs and improve revenue. The company also still has to integrate Target’s pharmacies and clinics. It started doing that with some North Carolina locations and expects to rebrand Target’s nearly 1,700 pharmacies over the next six to eight months.

“We’ve got a lot of heavy lifting to do when you think about the store and system conversions,” CEO Larry Merlo told analysts during a Tuesday morning conference call.

CVS Health reaffirmed a forecast it laid out in December for 2016 adjusted earnings of between $5.73 and $5.88 per share, with company officials emphasizing growth in the year’s second half.

Analysts expect, on average, earnings of $5.82 per share, according to FactSet.

CVS Health Corp. runs the nation’s second-largest chain of drugstores and one of the biggest pharmacy benefits management operations. The company pulls most of its revenue from the PBM side, which runs prescription drug plans for customers like insurers and employers.

CVS Health said revenue from that segment grew 11 per cent in the fourth quarter to $26.5 billion, with growth in specialty drugs also helping its performance. Specialty drugs are very expensive, usually injected, drugs for complex chronic health conditions — a category that is driving up overall spending on medications.

The company also booked $20 million in acquisition-related charges in the quarter and, like its competitors, has been dealing with higher prices for some generic drugs, which cut into its profitability.

Overall, CVS Health earned nearly $1.5 billion in the final quarter of 2015. That’s up from $1.32 billion in the last quarter of 2014.

Adjusted results totalled $1.53 in the most recent quarter, and revenue climbed 11 per cent to $41.15 billion.

Analysts expected, on average, earnings of $1.53 per share on $41.02 billion in revenue, according to Zacks Investment Research.

Counting the Target contribution, CVS Health operated 9,655 retail pharmacies at the end of 2015, a total that includes sites in Puerto Rico and Brazil.

Shares of CVS Health rose $1.19, or 1.3 per cent, to $90.84 in midday trading Tuesday, while broader indexes fell slightly.

The stock reached an all-time high price of $111.65 last summer before retreating and closing the year up 1.5 per cent at $97.77. The Standard & Poor’s 500 index fell slightly, not counting dividends.


Elements of this story were generated by Automated Insights ( using data from Zacks Investment Research. Access a Zacks stock report on CVS at


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