WBA Walgreens Boots Alliance Inc

By Sharon Terlep and Anna Wilde Mathews 

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 (May 2, 2019).

CVS Health Corp. delivered stronger-than-expected results in its first full quarter as a combined health-care company, taking a step toward selling skeptical investors on its acquisition of insurer Aetna Inc.

The nearly $70 billion acquisition, which closed in November, created an industry giant that combines a retail pharmacy, pharmacy-benefit manager and Aetna's insurance businesses.

CVS said Wednesday that the insurance business performed well in the latest period while its drugstores notched increased sales and higher profit on brand-name drugs.

The first-quarter results mark a shift from February when the Woonsocket, R.I.-based company offered a downbeat earnings projection for 2019 that sent shares tumbling. The latest performance also distinguishes CVS from rival Walgreens Boots Alliance Inc., which reported weaker profits in the most recent quarter and lowered its forecast citing weaker profit from generic-drug sales.

"Considering that expectations have been low, we see this as the first positive catalyst that restores investor confidence in this management team," SVB Leerink analyst Ana Gupte said.

Investors have been pressing CVS for a clearer picture of its growth prospects, and the company has promised to detail its plans in an investors day presentation set for June 4.

CVS shares lost a third of their value after the completion of the Aetna deal, erasing roughly $34 billion of market value. On Wednesdays, the shares were up 5% at about $57 in afternoon trading.

"None of us are happy with where our stock price is," CVS Chief Executive Larry Merlo said in an interview. "From our perspective we're very early. We're creating a pathway that no one has gone on in an effort to make health care more local and make it more simple."

Shareholder discontent was evident at a lunch meeting that Mr. Merlo and finance chief Eva Boratto held with investors in early March. The discussion was tense, according to an investor who attended, with the audience pressing the company for more clarity on its long-term financial expectations.

Commenting on the March meeting, UBS analyst Kevin Caliendo said in its wake that there appeared to be a "growing credibility issue with investors on how the company is framing the organic path forward for the retail, and consternation that synergy realization isn't flowing enough to the bottom line to generate accretion from the deal."

The company's first-quarter results and call with analysts "will help investor sentiment," Mr. Caliendo said Wednesday. "The next big hurdle is going to be visibility on 2020 earnings and earnings growth."

Analysts said many of the challenges for CVS are tied to broad policy issues affecting its core businesses. Shares of health insurers have slumped -- even for those with strong earnings -- as debate over the industry's future has highlighted Democratic interest in universal government-provided insurance.

CVS has said its deal to conjoin drugstores, a pharmacy-benefit manager and an insurer would help cut health-care costs and improve care. Mr. Merlo has talked about how the merged company will help ease the fragmented health-care experience for consumers.

CVS is also remaking some of its stores into health hubs, offering a broader range of services, many aimed at people with chronic health conditions such as diabetes. The company has said it hopes to save money and bolster care by improving patients' adherence to their prescriptions and having lower-cost sites provide care, instead of emergency rooms.

"Our first full quarter of combined operations was a success in many ways," Mr. Merlo said in a statement.

CVS reported a first-quarter profit of $1.4 billion, or $1.09 cents a share, up from $998 million, or 98 cents a share, a year earlier. Revenue jumped 35% to $61.6 billion. Analysts polled by Refinitv were expecting $1.05 a share in earnings for the latest period on revenue of $60.39 billion.

The company, which realigned its reporting structure to reflect last year's acquisition, said Aetna contributed $16.6 billion in revenue to its health-benefits segment with a boost from strong sales of Medicare products.

Same-store sales for its retail chain increased 3.8%, beating the FactSet estimate of a 1.2% increase. The company credited its selling more health-focused offerings, and an increase in pharmacy claims. Prescription volume grew 5.5% from the same period a year earlier, though Mr. Merlos said lower margins on prescription drugs will last throughout the year.

CVS raised it forecast, saying it expects adjusted earnings per share of $6.75 to $6.90, up from $6.68 to $6.88. The improved outlook remains below analyst expectations headed into 2019.

Write to Sharon Terlep at sharon.terlep@wsj.com and Anna Wilde Mathews at anna.mathews@wsj.com

(END) Dow Jones Newswires

May 02, 2019 02:47 ET (06:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.