CVS Reaps Benefits of Aetna Deal -- WSJ
February 13 2020 - 3:02AM
Dow Jones News
By Anna Wilde Mathews and Dave Sebastian
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 13, 2020).
CVS Health Corp. turned a profit that beat Wall Street
expectations and projected results for 2020 that matched estimates,
as it capped its first year of integrating health insurer Aetna
Inc.'s operations.
The earnings continued a string of quarters that mark a recovery
from a year ago, when CVS's shares dropped sharply after it offered
lackluster 2019 guidance. Shares of CVS rose slightly in trading
Wednesday morning on the New York Stock Exchange.
The company also said that the head of its pharmacy-benefits
unit, Derica Rice, will leave. His exit comes after the departure
earlier this year of Kevin Hourican, the leader of the pharmacy
operations, who left to take a CEO job elsewhere.
CVS said Alan Lotvin, currently an executive vice president,
will take over the PBM. The company previously said that chief
operating officer Jonathan Roberts would temporarily lead the
pharmacy unit.
CVS said during a conference call with analysts and investors
that it is seeing benefits from its nearly $70 billion takeover of
Aetna, which closed in late 2018.
"We have set a clear and bold path for CVS Health to be the most
consumer-centric health company, transforming the way care is
delivered in the U.S.," CVS Chief Executive Larry Merlo said. "With
over a year of successful integration, we have laid a strong
foundation for growth."
Former Aetna Chief Executive Mark Bertolini, who recently
resigned from CVS's board after publicly saying he was being pushed
out, told The Wall Street Journal the integration of the two
companies was far from complete.
In an interview, Mr. Merlo said, "The integration planning has
been complete for a while now; the execution of that has gone
extremely well." He said the company is delivering more financial
synergies from the deal than expected.
For 2020, CVS expects per-share earnings from continuing
operations of $5.47 to $5.60, or $7.04 to $7.17 on an adjusted
basis. It sees operating income of $12.8 billion to $13 billion, or
$15.5 billion to $15.8 billion on an adjusted basis.
Analysts polled by FactSet have projected 2020 earnings per
share of $5.52, or $7.15 on an adjusted basis.
CVS reported fourth-quarter net income of $1.75 billion, or
$1.33 a share, compared with a loss of $419 million, or 37 cents a
share, in the comparable quarter a year before. Adjusted earnings
were $1.73 a share.
Analysts were looking for earnings of $1.22 a share, or $1.68 a
share on an adjusted basis.
CVS said its revenue rose 22.9% to $66.89 billion from the same
period the year before as revenue from premiums shot up. Analysts
were targeting $63.93 billion.
Revenue in its retail segment, which fulfills prescription
medications and sells a range of merchandise, was $22.58 billion,
up from $22.03 billion in the year-earlier period. Like competitor
Walgreens Boots Alliance Inc., CVS faces pressure on margins in its
retail-pharmacy business.
Mr. Merlo said the company's health-hub stores, which offer a
broader array of health services than its traditional pharmacies,
are showing higher prescription volume and front-store sales in
line with expectations. Yet he didn't offer financial details on
their performance. He said the company would share more information
later this year.
CVS is in the process of rolling out around 1,500 of the new
stores, which target people with chronic conditions such as
diabetes with testing, monitoring and treatment plans.
The company's health-care benefits business, which includes
Aetna, posted revenue of $17.15 billion, up nearly threefold from
the prior year. The segment's medical-loss ratio, which represents
the share of premiums paid out in claims, was 85.7% for the
quarter.
Write to Anna Wilde Mathews at anna.mathews@wsj.com and Dave
Sebastian at dave.sebastian@wsj.com
(END) Dow Jones Newswires
February 13, 2020 02:47 ET (07:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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