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CVS Health sees strong finish to 2015 fiscal year

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Fourth-quarter and year-end sales advance by double digits

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WOONSOCKET, R.I. — CVS Health saw sales climb by double digits for the 2015 fourth quarter and fiscal year, fueled in large part by its acquisition of long-term care pharmacy provider Omnicare Inc., while adjusted earnings per share were in line with Wall Street’s forecast.

CVS said Tuesday that revenue for the fourth quarter ended Dec. 31 totaled $41.1 billion, up 11% from $37.1 billion a year earlier. For 2015, sales rose 10% to $153.3 billion from $139.4 billion in 2014.

In the retail/long-term care (LTC) pharmacy segment, fourth-quarter sales came in at $19.9 billion, up 12.5% from $17.7 billion a year ago. CVS said about half of the increase stemmed from LTC operations acquired in the Omnicare deal.

Same-store sales grew 3.5%, reflecting a 5% gain in the pharmacy and a 0.5% dip in the front end. The company noted that comparable-store sales in the front end were impacted by softer customer traffic, partially offset by growth in basket size, while comparable pharmacy sales were negatively impacted by 470 basis points from introductions of new generic drugs. Prescription count in the quarter was up 5% on a 30-day equivalent basis.

For all of 2015, retail/LTC revenue increased 6.2% to $72 billion from $67.8 billion in 2014. Same-store sales edged up 1.7%, including a 4.5% gain in the pharmacy and a 5% decrease in the front end. CVS noted that front-end comp-store sales would have been 520 basis points higher if tobacco and related basket sales were excluded from 2014 results.

Sales in the pharmacy services segment, or the pharmacy benefit management (PBM) business, were $26.5 billion in the fourth quarter, up 11.1% from $23.9 billion a year earlier. CVS attributed the gain mainly to growth in specialty pharmacy, driven partly by the addition of Omnicare, and in pharmacy network claims. For 2015 overall, PBM revenue totaled $100.4 billion, up 13.5% from $88.4 billion in 2014.

CVS reported that for the 2015 fourth quarter, its generic dispensing rate rose by 155 basis points to 84% for the retail/LTC segment and by 165 basis points to 83.7% for the PBM segment.

“We enjoyed a successful year in 2015, highlighted by excellent performance across our enterprise and two key acquisitions that support our strategy for growth,” CVS Health president and chief executive officer Larry Merlo said in a statement. “We grew our core business with the acquisition of Target’s pharmacies and clinics and expanded our reach with the acquisition of Omnicare, the leader in long-term care pharmacy. At the same time, we achieved solid year-over-year growth in revenues, operating profit and earnings per share. We also generated $6.4 billion in free cash flow for the full-year, exceeding our expectations. Through dividends and share repurchases, we returned more than $6 billion to our shareholders in 2015. As expected, growth in the fourth quarter was especially strong, with revenues increasing 11% and adjusted EPS increasing 26.5%, right in line with our guidance.”

In the fourth quarter of 2015, CVS posted income from continuing operations of $1.5 billion, compared with $1.3 billion a year earlier. Adjusted EPS was $1.53 for the 2015 quarter, compared with $1.21 a year ago. CVS noted that adjusted EPS excludes $191 million and $128 million of intangible asset amortization for the 2015 and 2014 fourth quarters, respectively. Adjusted EPS also excludes $72 million of acquisition-related transaction and integration costs and a $90 million legal charge. On a GAAP basis, diluted EPS for the 2015 quarter was $1.34, compared with $1.14 in the prior-year period.

Analysts, on average, had projected fourth-quarter adjusted EPS of $1.53, with estimates ranging from $1.51 to $1.55, according to Thomson Financial.

Income from continuing operations for 2015 came in at $5.2 billion, versus nearly $4.65 billion in 2014. Adjusted EPS was $5.16 for 2015 and $4.49 for 2014 and excludes $611 million and $518 million, respectively, of intangible asset amortization. CVS said adjusted EPS for 2015 also excludes $272 million of acquisition-related bridge financing, transaction and integration costs and a $90 million legal charge, as well as the loss on early extinguishment of debt in 2014. GAAP EPS for 2015 was $4.62, compared with $3.96 in 2014.

The consensus analyst forecast for 2015 was for adjusted EPS of $5.17, with projections running from a low of $5.14 to a high of $5.19.

CVS said that in the fourth quarter it opened 53 new retail drug stores, acquired 1,672 Target Corp. pharmacies, closed 14 retail stores and relocated 19 retail stores. As of Dec. 31, the company operated 9,655 retail stores, including Target pharmacies, in 49 states, the District of Columbia, Puerto Rico and Brazil.

“We continue to win and gain share across our businesses, and I’m very pleased with the outstanding PBM selling season we had for 2016, with gross client wins of $14.8 billion,” Merlo added. “Our growth in the fast-growing specialty market continues to outpace the industry. Overall, our leadership in multiple competencies enables us to provide superior value for patients, payers and providers. We firmly believe that we have the right strategy for success in the evolving health care marketplace.”

CVS reaffirmed for the 2016 full year and first quarter. The company expects adjusted EPS of $5.73 to $5.88 and GAAP diluted EPS from continuing operations of $5.28 to $5.43 for the year. First-quarter adjusted EPS is projected at $1.14 to $1.17, and GAAP diluted EPS at $1.03 to $1.06.

On average, analysts forecast CVS Health’s adjusted EPS for 2016 at $5.83, with estimates ranging from a low of $5.77 to a high of $5.90, according to Thomson Financial.


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