CVS Shares Drop as Guidance is Cut
November 08 2016 - 8:20AM
Dow Jones News
CVS Health Inc. warned that fewer people will fulfill retail
prescriptions at its pharmacies, as its integrated model is being
challenged by competitors including Walgreens Boots Alliance
Inc.
Shares dropped 11% to $73.94 in premarket trading as the company
also slashed its annual expectations and gave downbeat projections
for the coming fiscal year.
CVS Health's model of operating both a chain of retail
store-pharmacies and a pharmacy benefit manager has been pressured
by other pharmacy-benefit managers who have struck deals with
competitors. In August, Walgreens struck a deal with Prime
Therapeutics to become its preferred pharmacy.
Chief Executive Larry Merlo said recent pharmacy network changes
have caused some retail prescriptions to move out of its network in
the quarter.
He also cited slowing prescription growth in the market overall.
The drug industry has recently shown signs that it is slowing the
pace of price increases after years of hefty hikes, after pressure
from politicians, consumers and employers.
CVS also cut its guidance. It now expects full-year adjusted
earnings per share to be between $5.77 and $5.83, down from $5.81
to $5.89 previously. Analysts polled by Thomson Reuters had
expected earnings per share of $5.85. For 2017 it expects adjusted
earnings per share of $5.77 to $5.93. Analysts had expected
$6.52.
Pharmacy-benefits managers, which include companies like Express
Scripts Holding Co. and CVS Health's Caremark, operate as middlemen
between insurance companies, corporations that pay for health
coverage, drugmakers, and pharmacies. They help process claims for
prescriptions drugs while also negotiating with drugmakers and
insurance companies over the price of medications.
The Woonsocket, R.I.-based drugstore giant has increasingly
relied on its pharmacy benefits management division for growth.
In all for the quarter, CVS reported a profit of $1.54 billion,
or $1.43 a share, up from $1.25 billion, or $1.11 a share, a year
earlier. Excluding certain items, per-share profit rose to $1.64
from $1.28.
Revenue increased 15% to $44.62 billion.
Analysts predicted $1.57 in adjusted earnings a share and $45.29
billion in revenue, according to Thomson Reuters.
Write to Austen Hufford at austen.hufford@wsj.com
(END) Dow Jones Newswires
November 08, 2016 08:05 ET (13:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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