CVS Health’s Third-Quarter Headwinds Include Hurricane Winds — The Motley Fool

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CVS Health (NYSE:CVS) executives have readily acknowledged that 2017 is a rebuilding 12 months. The pharmacy large met expectations within the first two quarters of the 12 months, however these expectations have been comparatively low after CVS misplaced two main contracts within the second half of final 12 months. So far this 12 months, CVS Health’s pharmacy advantages administration (PBM) enterprise has been the primary supply of excellent information for the corporate.

The story remained a lot the identical when CVS Health reported its third-quarter outcomes previous to the market open on Monday. This time round, although, CVS Health had some encouraging information for traders. Here are the highlights from the corporate’s third-quarter replace.

A smiling female pharmacist across the counter from female customer in drugstore

Image supply: Getty Images.

CVS Health outcomes: The uncooked numbers

Metric 

Q3 2017 

Q3 2016 

Year-Over-Year Change

Sales

 $46.2 billion  $44.6 billion

three.5%

Net earnings from persevering with operations

 $1.three billion  $1.5 billion

(16.6%)

Adjusted EPS

 $1.50  $1.64

(eight.5%)

Data supply: CVS Health. EPS = earnings per share. 

What occurred with CVS Health this quarter?

The pharmacy providers phase, which incorporates CVS Health’s PBM unit and a number of other different companies, once more delivered the strongest efficiency for CVS Health within the third quarter. Revenue for the phase elevated eight.1% 12 months over 12 months to $32.9 billion.

Three components drove pharmacy providers income larger. First, there was a stable improve in pharmacy community declare quantity, due primarily to new enterprise. Second, model drug costs have been larger. And third, CVS Health loved stronger specialty pharmacy quantity.

However, the retail/long-term care (LTC) phase continued to battle. CVS Health reported third-quarter income for the phase of $19.6 billion, a 2.7% decline from the prior-year interval. Retail/LTC confronted the identical headwinds which have have been problematic within the second quarter, together with decrease same-store gross sales, larger generic meting out charges, and reimbursement pressures. However, whereas decrease same-store gross sales continued to be negatively impacted by the 2 main contract losses, within the third quarter CVS Health additionally felt the consequences of three main hurricanes that hit the southern U.S. and Puerto Rico. 

CVS Health took a success on its backside line as in comparison with the identical quarter in 2016 because of these points plus the timing of Medicare Part D funds. The federal prescription drug program’s risk-sharing hall, which subsidizes plan sponsors in order that they will not keep away from less-profitable members who use extra pharmaceuticals, had an enormous constructive influence within the third quarter of 2016 however will badist CVS Health extra within the fourth quarter this 12 months.

What administration needed to say

CVS Health president and CEO Larry Merlo highlighted the positives from his firm’s third-quarter efficiency. Merlo stated:

The stable third-quarter outcomes we posted right this moment maintain us nicely on monitor to attain our full-year targets. While working revenue within the retail/LTC phase was impacted by the devastating hurricanes, working revenue within the pharmacy providers phase was according to expectations. At the identical time, we continued to ship substantial free money movement and return vital worth to our shareholders by way of dividends and share repurchases.

He added:

Given our efficiency year-to-date and our confidence in our expectations for the rest of this 12 months, we’re narrowing and elevating the midpoint of our adjusted EPS steerage for 2017. We stay dedicated to returning to wholesome ranges of earnings development for the entire enterprise, and the actions we’ve taken up to now this 12 months, together with our expanded partnerships and new PBM choices, set us heading in the right direction for development.

Looking ahead

As Larry Merlo acknowledged, CVS Health’s outlook for the remainder of 2017 is extra optimistic than it has been. The firm now expects full-year 2017 GAAP diluted EPS between $four.98 and $5.02, up from its prior steerage of $four.92 to $5.02. Adjusted EPS for 2017 are projected to be between $5.87 and $5.91, in comparison with CVS Health’s earlier steerage of $5.83 to $5.93.

This interprets to fourth-quarter expectations of $1.75 to $1.79 in GAAP EPS, with adjusted EPS between $1.88 and $1.92. If CVS Health hits this steerage, it might mirror a return to year-over-year earnings development.

The greatest factor for traders to observe within the months forward is CVS Health’s bid to ambad Aetna (NYSE:AET). There are a number of explanation why this acquisition might repay for CVS Health’s shareholders, though there are additionally just a few hurdles to leap that might forestall a deal from being finalized. If CVS Health is profitable in its try to purchase the mbadive well being insurer, 2018 will not be a rebuilding 12 months like 2017 — will probably be a reworking 12 months.

 

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