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CVS Caremark pursues ‘purposeful innovation’

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NEW YORK — Flexibility and an unmatched breadth of assets position CVS Caremark Corp. to thrive in a changing health care landscape, executives said at the company’s annual analyst day event.

CVS executives forecasted adjusted earnings per share next year of $4.36 to $4.50, up 10.25% to 13.75% (excluding a gain from a 2013 legal settlement). Earnings this year are expected to be $3.94 to $3.97 — at the high end of the company’s initial guidance and as much as 15.75% higher

“CVS Caremark has an in-depth understanding of the changing health care landscape, including the challenges and opportunities that lie ahead,” president and chief executive officer Larry Merlo said at the analyst day event, held last month. “These changes in the environment are creating opportunities for the company, and our unique combination of ability and agility positions us to capitalize on these opportunities — however they take shape.”

“We are seeing what we call the ‘retailization’ of health care, which is the rise of consumerism, fueled in large part by the increasing numbers of individuals in consumer-driven health plans,” he added. “Our response to changes in the environment is to drive purposeful innovation to better meet the changing needs of clients and customers. CVS Caremark has decades of experience in a business-to-consumer as well as a business-to-business environment and we are very well positioned to win share.”

Merlo and other executives said CVS Caremark’s unique business model focuses on enhancing access, lowering costs and improving health outcomes through consumer-driven, channel-agnostic programs that create value for patients, customers and clients.

Executives outlined key challenges and opportunities emerging in a health care environment that is undergoing its most transformative shift in decades and identified the highest-priority initiatives that define the company’s enterprise growth strategy.

Areas of focus include succeeding in the evolving pharmacy benefit management marketplace, capitalizing on the specialty pharmacy opportunity, driving retail growth through personalization, unlocking adherence through pharmacy excellence and transforming primary care through the expansion of MinuteClinics.

“Looking to the future, our enterprise growth strategy will continue to capitalize on our unique competitive advantages,” said Merlo. “We’re focused on winning new lives, whether or not we are the PBM, and on capturing greater share of pharmacy spend across all channels. We will continue to drive operational efficiencies and excellence in execution along with continuous innovation to better meet the changing needs of our customers. With the building blocks of our enterprise strategy in place, we have a strong outlook for 2014 and beyond.”

Executive vice president and chief financial officer Dave Denton reaffirmed the company’s projections for 2013 and outlined its guidance for 2014. The company expects to deliver GAAP diluted earnings per share from continuing operations next year in the range of $4.09 to $4.23. It also expects to generate substantial free cash flow of $5.1 billion to $5.4 billion, and cash from operations of $6.6 billion to $6.9 billion.

The guidance assumes completion of $4 billion in share repurchases during 2014; the interest associated with the company’s recent $2 billion, non-deal-related debt issuance, which is expected to decrease annual EPS by about three cents; the second-half launch of the recently announced generic sourcing venture with Cardinal Health, which is expected to increase annual EPS by two cents in 2014; and the impact of the pending acquisition of Coram’s infusion business. This includes onetime transaction and integration costs as well as the interest associated with the recent $2 billion, deal-related debt issuance, all of which combined is expected to have an immaterial impact on overall financial results in 2014.

“CVS Caremark has a strong track record of meeting or exceeding our financial targets,” said Denton. “The outlook for 2014 is bright, and we are focused on strategies that will lead to solid, long-term enterprise growth. We continue to generate a substantial amount of free cash flow, and we remain committed to disciplined capital allocation practices that drive value for our shareholders.”

The company also announced an increase in its quarterly dividend of around 22%, to 27.5 cents per share, payable February 3 to holders of record on January 23. The increased dividend translates into an annual rate of $1.10 per share, up 20 cents per share.

“This 22% increase in our dividend reflects the board’s continued confidence in our growth outlook and ongoing commitment to returning value to our shareholders,” Denton said.

In addition, CVS Caremark announced approval of a new share repurchase program for up to $6 billion of outstanding common stock. The share repurchase authorization, which is effective immediately, permits the company to effect the repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase transactions, and/or other derivative transactions. Completion is expected to take years.


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