WOONSOCKET, R.I., Jan. 4, 2018 /PRNewswire/ -- This morning
CVS Health (NYSE: CVS) issued its initial outlook for 2018,
expressing confidence in the execution of its growth strategy.
For full-year 2018, the company expects to deliver consolidated
net revenue growth of 0.75% to 2.5% and adjusted consolidated
operating profit growth of 1% to 4%. Adjusted operating profit in
its Retail/LTC segment is expected to grow in the low-single digits
and adjusted operating profit in its Pharmacy Services segment is
expected to grow in the low- to mid-single digits. Strong growth in
scripts and claims, continued purchasing efficiencies from the
company's Red Oak venture, and
incremental net benefits from the company's streamlining initiative
are expected to be beneficial contributors to enterprise
growth.
Operating profit growth in 2018 is expected to be unfavorably
affected by costs associated with the company's implementation of
its contract to provide PBM services to Anthem, Inc. beginning in
2020, as well as the recent divestiture of RxCrossroads. Together,
these two factors reduce expected adjusted consolidated operating
profit growth by approximately 125 basis points. While the company
continues to expect its pending acquisition of Aetna Inc. to close
during the second half of 2018, for guidance purposes only, the
acquisition is assumed to close after year-end 2018. As with past
acquisitions, all acquisition-related transaction, integration and
bridge financing costs will be excluded from the company's adjusted
figures.
In the Retail/LTC segment, the company expects revenue growth of
2.5% to 4%, driven by strong same store script growth of 6% to 7%
primarily as a result of broader partnerships established with PBMs
and health plans and its expanded participation as a preferred
pharmacy in a greater number of Medicare Part D networks. The
company expects same store sales to be in the range of 2% to
3.5%.
In the Pharmacy Services segment, the company expects claims
growth of approximately 8% and revenue growth of 1.5% to 3.5%.
Factors impacting revenue growth include the administration of
rebates for Aetna's Medicare Part D business, which begins in 2018
under the companies' existing PBM contract; the expectation that
generic specialty introductions will increase; the continuation of
brand inflation at levels lower than the market has historically
seen; and continuing pricing pressures.
The company expects net interest expense in a range of
$2.0 billion to $2.3 billion in 2018. It expects to use cash on
hand to retire debt that will be maturing during the year, but in
addition to interest on its existing portfolio of debt, the company
will incur acquisition-related bridge financing fees as well as
interest on the new debt expected to be issued to fund the
acquisition. The guidance range takes into account the variability
of timing of issuance and interest rates as well as the mix of
maturities of the new debt.
The company will benefit from the recent comprehensive tax
reform signed into law last month. Taking into account the change
in the statutory federal rate as well as the law's effects on state
taxes and other permanent items, the company expects its effective
tax rate to be approximately 27% in 2018. This reduction in the tax
rate represents an increase in cash flow of approximately
$1.2 billion. With the financial
flexibility that tax reform provides, the company anticipates
making strategic investments in future areas of growth in its
business, particularly as CVS Health and Aetna combine to remake
the consumer health experience, and will have more to say as plans
are finalized.
As previously announced, the company suspended share repurchases
during the fourth quarter of 2017 due to its pending acquisition of
Aetna Inc. Absent the suspension, share repurchases in 2018 would
have contributed approximately 340 to 610 basis points of growth to
adjusted EPS. The company had also previously announced that it
would maintain its current annual dividend of $2.00 per share throughout the year.
Additionally, the company revised its outlook for the fourth
quarter of 2017. Due to softer margin performance in the PBM's
client and retail network claims management process, the company
now expects a mid-teens growth rate in the fourth quarter and about
4% for the full year for the Pharmacy Services segment's adjusted
operating profit. The company continues to expect fourth quarter
operating profit from its Retail/LTC segment to be at the high end
of its previously-provided range of (3.5%) to (1.0%). Combined with
the impact from the suspension of share repurchases, offset by a
better effective tax rate, the company expects to deliver adjusted
consolidated operating profit growth and adjusted EPS at the lower
end of their respective ranges provided during its third quarter
2017 earnings call. At that time, the company expected adjusted
consolidated operating profit growth of 5.75% to 8% and adjusted
EPS of $1.88 to $1.92. Also, the company expects to meaningfully
benefit in the fourth quarter from the Tax Cuts and Jobs Act, but
estimates of these benefits have not been included as the company
is currently assessing the law's impact on its 2017 financial
statements.
Teleconference and Webcast
The Company will be holding a conference call today for the
investment community at 11:00 am (ET)
to discuss its guidance expectations. An audio webcast of the call
will be broadcast simultaneously for all interested parties through
the Investor Relations section of the CVS Health website
at http://investors.cvshealth.com. This webcast will be
archived and available on the website for a one-year period
following the conference call.
Non-GAAP Financial Measures
CVS Health is providing non-GAAP information on a prospective
basis that excludes certain items because of the nature of these
items and the impact they have on the analysis of underlying
business performance and trends. Management believes that
providing this information enhances investors' understanding of the
company's performance. This information should be considered in
addition to, rather than as a substitute for, information prepared
in accordance with GAAP. CVS Health's definitions of these non-GAAP
items may not be comparable to similarly-titled measurements
reported by other companies.
Adjusted earnings per share, or adjusted EPS, is income from
continuing operations excluding the impact of certain adjustments
such as the amortization of intangible assets, acquisition-related
integration costs, charges in connection with store
rationalization, goodwill impairments, adjustments to legal
reserves in connection with certain legal settlements, losses on
early extinguishment of debt and losses on settlements of
defined benefit pension plans, and the income tax benefit
associated with the Tax Reform and Jobs Act included as part of
these adjustments for (a) expected EPS for Q4 2017 and 2017
full-year, are amounts related to bridge financing fees and
transaction costs for the proposed acquisition of Aetna, as well as
transaction costs for the divestiture of RxCrossroads and (b)
adjusted EPS for 2018 guidance, are bridge financing fees and
transaction and integration costs related to the proposed
acquisition of Aetna, as well as transaction costs for the
divestiture of RxCrossroads. To calculate adjusted EPS, adjusted
income from continuing operations is divided by the company's
expected weighted average diluted shares outstanding for the
relevant period. The company believes that this measure enhances
investors' ability to compare the company's past financial
performance with its current and expected performance. The
most comparable GAAP measure is diluted earnings per share.
Adjusted operating profit is operating profit excluding the
impact of acquisition-related integration costs, charges in
connection with store rationalization, goodwill impairments, and
adjustments to legal reserves in connection with certain legal
settlements, also included as part of these adjustments for (a)
expected adjusted operating profit for Q4 2017 and 2017 full-year,
are amounts related to transaction costs for the proposed
acquisition of Aetna, as well as transaction costs for the
divestiture of RxCrossroads and (b) adjusted operating profit for
2018 guidance, are transaction and integration costs related to the
proposed acquisition of Aetna, as well as transaction costs for the
divestiture of RxCrossroads. The company believes that this measure
enhances investors' ability to compare the company's past financial
performance with its current expected performance. The most
comparable GAAP measure is operating profit.
As there is uncertainty in connection with calculating the
adjustments necessary to prepare reconciliations from the non-GAAP
financial measures to the comparable GAAP financial measures, the
company is unable to reconcile the non-GAAP financial measures
without unreasonable efforts. The items, including, in
particular, the additional excluded items identified above, could
result in significant adjustments from the most comparable GAAP
measure. In addition, for the 2018 guidance estimates of adjusted
EPS and adjusted operating profit, the significant complexity in
assessing the impact of tax reform changes creates additional
challenges in providing reconciliations to the most comparable GAAP
measures. Therefore, no reconciliation is being provided at
this time.
About the Company
CVS Health is a pharmacy innovation company helping people on
their path to better health. Through its more than 9,700 retail
locations, more than 1,100 walk-in medical clinics, a leading
pharmacy benefits manager with nearly 90 million plan members, a
dedicated senior pharmacy care business serving more than one
million patients per year, expanding specialty pharmacy services,
and a leading stand-alone Medicare Part D prescription drug plan,
the company enables people, businesses and communities to manage
health in more affordable and effective ways. This unique
integrated model increases access to quality care, delivers better
health outcomes and lowers overall health care costs. Find more
information about how CVS Health is shaping the future of health
at https://www.cvshealth.com.
Cautionary Statement Regarding Forward-Looking
Statements
The Private Securities Litigation Reform Act of 1995 (the
"Reform Act") provides a safe harbor for forward-looking statements
made by or on behalf of CVS Health or Aetna. This
communication may contain forward-looking statements within
the meaning of the Reform Act. You can generally
identify forward-looking statements by the use
of forward-looking terminology such as "anticipate,"
"believe," "can," "continue," "could," "estimate," "evaluate,"
"expect," "explore," "forecast," "guidance," "intend," "likely,"
"may," "might," "outlook," "plan," "potential," "predict,"
"probable," "project," "seek," "should," "view," or "will," or the
negative thereof or other variations thereon or comparable
terminology. These forward-looking statements are only
predictions and involve known and unknown risks and uncertainties,
many of which are beyond CVS Health's and Aetna's control.
Statements in this communication regarding CVS Health and Aetna
that are forward-looking, including CVS Health's and Aetna's
projections as to the closing date for the pending acquisition of
Aetna (the "transaction"), the extent of, and the time necessary to
obtain, the regulatory approvals required for the transaction, the
anticipated benefits of the transaction, the impact of the
transaction on CVS Health's and Aetna's businesses, the expected
terms and scope of the expected financing for the transaction, the
ownership percentages of CVS Health's common stock of CVS Health
stockholders and Aetna shareholders at closing, the aggregate
amount of indebtedness of CVS Health following the closing of the
transaction, CVS Health's expectations regarding debt repayment and
its debt to capital ratio following the closing of the transaction,
CVS Health's and Aetna's respective share repurchase programs and
ability and intent to declare future dividend payments, the number
of prescriptions used by people served by the combined companies'
pharmacy benefit business, the synergies from the transaction, and
CVS Health's, Aetna's and/or the combined company's future
operating results, are based on CVS Health's and Aetna's
managements' estimates, assumptions and projections, and are
subject to significant uncertainties and other factors, many of
which are beyond their control. In particular, projected financial
information for the combined businesses of CVS Health and Aetna is
based on estimates, assumptions and projections and has not been
prepared in conformance with the applicable accounting requirements
of Regulation S-X relating to pro forma financial information, and
the required pro forma adjustments have not been applied and are
not reflected therein. None of this information should be
considered in isolation from, or as a substitute for, the
historical financial statements of CVS Health and Aetna. Important
risk factors related to the transaction could cause actual future
results and other future events to differ materially from those
currently estimated by management, including, but not limited
to: the timing to consummate the proposed transaction; the
risk that a regulatory approval that may be required for the
proposed transaction is delayed, is not obtained or is obtained
subject to conditions that are not anticipated; the risk that a
condition to the closing of the proposed transaction may not be
satisfied; the ability to achieve the synergies and value creation
contemplated; CVS Health's ability to promptly and effectively
integrate Aetna's businesses; and the diversion of and attention of
management of both CVS Health and Aetna on transaction-related
issues.
In addition, this communication may contain forward-looking
statements regarding CVS Health's or Aetna's respective businesses,
financial condition and results of operations. These
forward-looking statements also involve risks, uncertainties and
assumptions, some of which may not be presently known to CVS Health
or Aetna or that they currently believe to be immaterial also may
cause CVS Health's or Aetna's actual results to differ materially
from those expressed in the forward-looking statements, adversely
impact their respective businesses, CVS Health's ability to
complete the transaction and/or CVS Health's ability to realize the
expected benefits from the transaction. Should any risks and
uncertainties develop into actual events, these developments could
have a material adverse effect on the transaction and/or CVS Health
or Aetna, CVS Health's ability to successfully complete the
transaction and/or realize the expected benefits from the
transaction. Additional information concerning these risks,
uncertainties and assumptions can be found in CVS Health's and
Aetna's respective filings with the Securities and Exchange
Commission (the "SEC"), including the risk factors discussed in
"Item 1.A. Risk Factors" in CVS Health's and Aetna's most recent
Annual Reports on Form 10-K, as updated by their Quarterly
Reports on Form 10-Q and future filings with the SEC.
You are cautioned not to place undue reliance on CVS Health's
and Aetna's forward-looking statements. These forward-looking
statements are and will be based upon management's then-current
views and assumptions regarding future events and operating
performance, and are applicable only as of the dates of such
statements. Neither CVS Health nor Aetna assumes any duty to
update or revise forward-looking statements, whether as a
result of new information, future events or otherwise, as of any
future date.
No Offer or Solicitation
This communication is for informational purposes only and not
intended to and does not constitute an offer to subscribe for, buy
or sell, the solicitation of an offer to subscribe for, buy or sell
or an invitation to subscribe for, buy or sell any securities or
the solicitation of any vote or approval in any jurisdiction
pursuant to or in connection with the proposed transaction or
otherwise, nor shall there be any sale, issuance or transfer of
securities in any jurisdiction in contravention of applicable law.
No offer of securities shall be made except by means of a
prospectus meeting the requirements of Section 10 of the Securities
Act of 1933, as amended, and otherwise in accordance with
applicable law.
Additional Information and Where to Find It
In connection with the proposed transaction between CVS Health
and Aetna, CVS Health and Aetna will file relevant materials with
the SEC, including a CVS Health registration statement on Form S-4
that will include a joint proxy statement of CVS Health and Aetna
that also constitutes a prospectus of CVS Health, and a definitive
joint proxy statement/prospectus will be mailed to stockholders of
CVS Health and shareholders of Aetna. INVESTORS AND SECURITY
HOLDERS OF CVS HEALTH AND AETNA ARE URGED TO READ THE JOINT PROXY
STATEMENT/PROSPECTUS AND OTHER DOCUMENTS THAT WILL BE FILED WITH
THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors and
security holders will be able to obtain free copies of the
registration statement and the joint proxy statement/prospectus
(when available) and other documents filed with the SEC by CVS
Health or Aetna through the website maintained by the SEC at
http://www.sec.gov. Copies of the documents filed with the SEC by
CVS Health will be available free of charge within the Investors
section of CVS Health's Web site at
http://www.cvshealth.com/investors or by contacting CVS Health's
Investor Relations Department at 800-201-0938. Copies of the
documents filed with the SEC by Aetna will be available free of
charge on Aetna's internet website at http://www.Aetna.com or by
contacting Aetna's Investor Relations Department at
860-273-8204.
Participants in Solicitation
CVS Health, Aetna, their respective directors and certain of
their respective executive officers may be considered participants
in the solicitation of proxies in connection with the proposed
transaction. Information about the directors and executive
officers of CVS Health is set forth in its Annual Report on Form
10-K for the year ended December 31,
2016 ("CVS Health's Annual Report"), which was filed with
the SEC on February 9, 2017, its
proxy statement for its 2017 annual meeting of stockholders, which
was filed with the SEC on March 31,
2017, and its Current Report on Form 8-K, which was filed
with the SEC on May 12, 2017.
Information about the directors and executive officers of Aetna is
set forth in its Annual Report on Form 10-K for the year ended
December 31, 2016 ("Aetna's Annual
Report"), which was filed with the SEC on February 17, 2017, its proxy statement for its
2017 annual meeting of shareholders, which was filed with the SEC
on April 7, 2017 and its Current
Reports on Form 8-K, which were filed with the SEC on May 24, 2017 and October
2, 2017. Other information regarding the participants
in the proxy solicitations and a description of their direct and
indirect interests, by security holdings or otherwise, will be
contained in the joint proxy statement/prospectus and other
relevant materials to be filed with the SEC when they become
available.
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SOURCE CVS Health