Company raises full year earnings guidance

WOONSOCKET, R.I. _ CVS Health reported strong first quarter results, topping analysts’ forecasts for revenue and earnings.

Total revenue for the period ended March 31 climbed 11.2% from the year-ago quarter to $76.8 billion, driven by growth across all segments. Wall Street had estimated revenue of $75.3 billion.

Adjusted earnings per share rose 8.8% to $2.22. Analysts had projected $2.14.

For all of 2022, the company raised its adjusted EPS guidance range to $8.20 to $8.40 from $8.10 to $8.30. It confirmed its cash flow from operations guidance range of $12 billion to $13 billion.

Karen Lynch

“Our strategy improves access to affordable, convenient and personalized health care, which benefits consumers and shareholders. We once again showed the power of our purpose and potential, building on our strong momentum and raising full-year guidance as a result,” said president and CEO Karen Lynch.

CVS continued to lead the nation’s pandemic response by administering more than 6 million COVID-19 tests and more than 8 million vaccines in the quarter.

Operating income in the quarter decreased 2.4% primarily due to the establishment of a legal settlement accrual related to the pending agreement with the state of Florida to settle all opioid claims against the company for $484 million, which will be paid over a period of 18 years. The decrease in operating income was partially offset by the increase in adjusted operating income described below and a decrease in amortization of intangible assets compared to prior year.

Adjusted operating income increased 6.6% primarily due to increased prescription and front store volume, including the sale of COVID-19 test kits, and the impact of COVID-19 vaccinations in the Retail/LTC segment and improved purchasing economics and growth in specialty pharmacy in the Pharmacy Services segment.

Interest expense decreased $71 million, or 10.8%, due to lower debt.

The effective income tax rate decreased to 21.5% compared to 25.1% primarily due to the impact of certain discrete tax items concluded in the quarter. The adjusted effective income tax rate remained relatively consistent compared to the prior year.

Retail/LTC revenues increased 9.2% compared to last year, primarily driven by increased prescription and front store volume, including the sale of COVID-19 OTC test kits and the impact of a weaker cough, cold and flu season experienced in the prior year, as well as pharmacy brand inflation. These increases were partially offset by the impact of recent generic introductions, continued pharmacy reimbursement pressure and decreased COVID-19 diagnostic testing.

Adjusted operating income increased 15.1%, primarily driven by the increased prescription and front store volume described above, the impact of COVID-19 vaccinations and improved generic drug purchasing. These increases were partially offset by continued pharmacy reimbursement pressure, increased investments in the segment’s operations and capabilities and decreased COVID-19 diagnostic testing.

Prescriptions filled increased 5.1% on a 30-day equivalent basis compared to the year-ago period, primarily driven by increased utilization and the impact of a weaker cough, cold and flu season experienced in the prior year. Excluding the impact of COVID-19 vaccinations, prescriptions filled increased 5.6% on a 30-day equivalent basis.

Pharmacy Services revenues increased 8.6%, primarily driven by increased pharmacy claims volume, growth in specialty pharmacy and brand inflation, partially offset by continued client price improvements.

Adjusted operating income increased 8.6%, primarily driven by improved purchasing economics, including increased contributions from the products and services of the company’s group purchasing organization, and specialty pharmacy. These increases were partially offset by continued client price improvements.

Total pharmacy claims processed increased 5.8% on a 30-day equivalent basis. The increase was primarily driven by net new business, increased utilization and the impact of a weaker cough, cold and flu season experienced in the prior year. Excluding the impact of COVID-19 vaccinations, total pharmacy claims processed increased 5.5% on a 30-day equivalent basis.

Health Care Benefits revenues increased 12.8%, driven by growth across all product lines.

Adjusted operating income decreased slightly, mainly as a result of net realized capital losses and the continued progression towards normalized total medical costs, largely offset by membership growth across all product lines.

The MBR increased slightly to 83.5% compared to 83.2% in the prior year, reflecting continued progression towards normalized total medical costs. The medical membership as of March 31 of 24.5 million was up 674,000 from December, reflecting increases across all product lines.

The segment experienced favorable development of prior years’ health care cost estimates in its government services and commercial businesses, primarily attributable to fourth quarter 2021 performance.

Prior years’ health care costs payable estimates developed favorably by $676 million. This development is reported on a basis consistent with the prior years’ development reported in the health care costs payable table in the company’s annual audited financial statements and does not directly correspond to an increase in 2022 operating results.

CVS revised its full-year 2022 GAAP diluted EPS guidance range to $6.93 to $7.13 from $7.04 to $7.24. Adjustments between full-year 2022 GAAP diluted EPS and adjusted EPS include amortization of intangible assets, a legal settlement accrual, a loss on assets held for sale, the corresponding income tax benefit or expense related to the items excluded from adjusted income and the impact of certain discrete tax items concluded in the first quarter.