Pharmacy benefits, Aetna power CVS third-quarter profit beat
06 November 2019 15:44
(Reuters) - CVS Health Corp (CVS.N) reported better-than-expected third-quarter profit and revenue on Wednesday, boosted by its Aetna health insurance and pharmacy benefits businesses, and it raised its 2019 earnings forecast.
Shares of CVS, best known for its chain of drugstores, rose more than 4% in early trading.
CVS completed its purchase of Aetna last year, combining one of the largest U.S. pharmacy benefit managers with one of the nation’s oldest health insurers.
A key part of CVS’ healthcare strategy are its “HealthHUB” pharmacies that provide expanded services such as chronic care management for diabetes. They could be a source of lower cost services for its Aetna customers, saving the company money.
Analysts have questioned the size of financial benefits CVS will gain from those pharmacies, but the company said it now expects its HealthHUBs to contribute to earnings in 2021 as it works toward a goal of opening 1,500 such stores by the end of that year.
“It’s a very small subset of stores at this point,” said Chief Executive Officer Larry Menlo on a call with analysts.
He said the company should be able to provide better clarity on the financial performance of that business “sometime in the second quarter time frame” of 2020.
The pharmacy benefits management (PBM) business, which negotiates discounts with drugmakers for its clients that include insurers, benefited in the third quarter from increased pharmacy claims and a rise in prices of branded drugs.
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Sales in the unit rose 6.4% to $36.02 billion.
The healthcare benefits business, which includes Aetna, reported sales of $17.18 billion in the quarter, helped by lower-than-expected medical costs.
CVS’ retail unit came under some pressure from lower reimbursement rates for filing prescriptions, which has plagued the industry over the past few quarters.
Rival drugstore chain Walgreen Boots Alliance Inc (WBA.O) has been exploring whether to go private, Reuters reported on Tuesday, citing sources.
CVS plans to close about 75 retail pharmacy stores in 2020, Chief Financial Officer Eva Boratto said on the call.
Sales in its retail business rose 2.9% to $21.47 billion, marking the slowest growth rate of its major segments for the quarter.
The company said it now expects 2019 adjusted profit of $6.97 to $7.05 per share, compared with its previous forecast of $6.89 to $7.00.
Excluding items, the company earned $1.84 per share, topping analysts’ average estimate by 7 cents.
After adjusted for inter-unit revenues, CVS revenue for the quarter jumped 36.5% to $64.81 billion, beating Wall Street expectations of $62.99 billion.