CVS Caremark Reports Strong Profit Growth for Full Year 2013; Fourth Quarter Adjusted EPS at High End of Its Expectations

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CVS Caremark Reports Strong Profit Growth for Full Year 2013; Fourth Quarter Adjusted EPS at High End of Its Expectations

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Tuesday, February 11, 2014 - 11:00am

CAMPAIGN: Leader in Growth

CONTENT: Press Release

WOONSOCKET, R.I., Feb. 11, 2014 /3BL Media/ - CVS Caremark Corporation (NYSE: CVS) today announced operating results for the three months and year ended December31, 2013.

Fourth Quarter Year-over-year Highlights:

  • Net revenues increased 4.6% to a record $32.8 billion, with Pharmacy Services up 5.2% and Retail Pharmacy up 5.6%
  • Retail Pharmacy Segment same store sales increased 4.0%
  • Adjusted EPS increased 15.8% to $1.12, while GAAP diluted EPS from continuing operations increased 16.9% to $1.05
  • Excluding a $0.17 per share loss on early extinguishment of debt in the fourth quarter of 2012, Adjusted EPS decreased 1.9%

Full Year Highlights:

  • Net revenues increased 3.0% to a record $126.8 billion, with Pharmacy Services up 3.8% and Retail Pharmacy up 3.1%
  • Retail Pharmacy Segment same store sales increased 1.7%
  • Adjusted EPS of $4.00 and GAAP diluted EPS from continuing operations of $3.75, both of which include a $0.04 gain from a legal settlement in the third quarter
  • Adjusted EPS increased 15.7% to $3.96, excluding the legal settlement gain in 2013 and the loss from early extinguishment of debt in 2012
  • Generated free cash flow of $4.4 billion; cash flow from operations of $5.8 billion

2014 Guidance:

  • Confirmed full year Adjusted EPS to $4.36 to $4.50; GAAP diluted EPS from continuing operations of $4.09 to $4.23
  • Raised first quarter Adjusted EPS to $1.03 to $1.06; GAAP diluted EPS from continuing operations to $0.97 to $1.00
  • Raised full year free cash flow to a range of $5.5 to $5.8 billion from $5.1 to $5.4 billion; raised cash flow from operations to $7.0 to $7.3 billion from $6.6 to $6.9 billion

President and Chief Executive Officer Larry Merlo said, "I am very pleased with our fourth quarter results, which came in at the high end of our expectations and helped produce a record year. As expected, the quarter was somewhat atypical, largely due to the timing of Medicare Part D profits within the PBM and the timing of break-open generics across the enterprise. Overall, the year 2013 produced strong growth in revenues, gross margin, operating margin and earnings across the enterprise."

Revenues

Net revenues for the three months ended December31, 2013, increased 4.6%, or $1.4 billion to$32.8 billion, up from $31.4 billion in the three months ended December31, 2012. For the year ended December31, 2013, total revenue increased 3.0%, or $3.6 billion to $126.8 billion, compared to $123.1 billion for the year ended December31, 2012.

Revenues in the Pharmacy Services Segment increased 5.2% to $19.6 billion in the three months ended December31, 2013. This increase was primarily associated with drug cost inflation, new products and new clients in the specialty pharmacy business. Pharmacy network claims processed during the three months ended December31, 2013, decreased 0.3% to 204.9 million, compared to 205.5 million in the prior year period. The decrease was primarily due to fewer Medicare Part D claims resulting from lower membership due to the sanctions placed on the Company in 2013 by the Centers for Medicare and Medicaid Services. Mail choice claims processed during the three months ended December31, 2013, increased approximately 3.1% to 21.0 million compared to 20.4 million in the prior year period. The increase in the mail choice claim volume was primarily due to increased claims associated with the continuing adoption of our Maintenance Choice offerings. For the year ended December31, 2013, total revenue in the Pharmacy Services Segment increased 3.8% to $76.2 billion, compared to $73.4 billion in the year ended December31, 2012.

Revenues in the Retail Pharmacy Segment increased 5.6% to $17.2 billion in the three months ended December31, 2013. Same store sales increased 4.0% over the prior year period, with pharmacy same store sales up 6.8% and front store same store sales down 1.9%. The decline in front store same store sales was driven by softer traffic, which was partially offset by an increase in basket size. Additionally, pharmacy same store prescription volumes rose 3.8% when each 90-day prescription is converted into three prescriptions. When counting each 90-day prescription as one prescription, same store prescription volumes increased 0.8% in the quarter. Pharmacy same store sales were negatively impacted by approximately 230 basis points due to recent generic introductions. For the year ended December31, 2013, total revenue in the Retail Pharmacy Segment increased 3.1% to $65.6 billion, compared to $63.6 billion in the year ended December31, 2012. Same store sales increased 1.7% for the year ended December31, 2013, over the prior year, with pharmacy same store sales up 2.6% and front store same store sales down 0.5%.

For the three months ended December31, 2013, the generic dispensing rate increased approximately 110 basis points in both segments to 81.1% in our Pharmacy Services Segment and 81.0% in our Retail Pharmacy Segment, compared to the prior year period.

Income from Continuing Operations Attributable to CVS Caremark

Income from continuing operations attributable to CVS Caremark for the three months ended December31, 2013, increased 12.4% or $141 million, to $1.3 billion, compared with $1.1 billion for the three months ended December31, 2012. Adjusted earnings per share from continuing operations attributable to CVS Caremark (Adjusted EPS) for the three months ended December31, 2013 and 2012, was $1.12 and $0.96, respectively, at the high end of guidance. Adjusted EPS excludes $124 million of intangible asset amortization related to acquisition activity in both the three months ended December31, 2013 and 2012. GAAP earnings per diluted share from continuing operations attributable to CVS Caremark ("GAAP EPS") for the three months ended December31, 2013 and 2012, was $1.05 and $0.90, respectively. Both Adjusted and GAAP EPS for the fourth quarter 2012 included a $348 million, or an approximate $0.17 per share, loss on early extinguishment of debt.

Income from continuing operations attributable to CVS Caremark for the year ended December31, 2013, increased 18.8% or $729 million, to $4.6 billion, compared to $3.9 billion in the prior year. Adjusted EPS, which excludes $494 million and $486 million of intangible asset amortization related to acquisition activity for the years ended December31, 2013 and 2012, was$4.00 and $3.26, respectively. These results include: a $72 million, or an approximate $0.04 per share, gain from a legal settlement recognized in the third quarter of 2013; and the $348 million, or the approximate $0.17 per share, loss on early extinguishment of debt recognized in the fourth quarter of 2012. Excluding the gain from the legal settlement and the loss on early extinguishment of debt, Adjusted EPS increased 15.7% in 2013 to $3.96, at the high end of guidance. GAAP EPS for the year ended December 31, 2013, was $3.75, which also includes the impact of the gain from the legal settlement, compared to $3.02 in the prior year, which includes the loss on early extinguishment of debt.

With respect to the Company's future prospects, Mr.Merlo stated, "The U.S. health care landscape is undergoing its most transformative change in decades. Health care consumers are taking on greater responsibility for choosing their own plans and controlling costs - what we're calling the 'retailization' of health care while payors and providers are increasingly looking for new ways to improve the health care value equation. With our unique pharmacy health care model, we have the ability and agility to offer innovative solutions and capitalize on these changing market dynamics. As a result, we look forward to continued strong growth in 2014 and beyond."

Guidance

The Company confirmed its earnings guidance for the full year 2014. The Company currently expects to deliver Adjusted EPS of $4.36 to $4.50 and GAAP diluted earnings per share from continuing operations of $4.09 to $4.23 in 2014.These 2014 guidance estimates assume the completion of $4.0 billion in share repurchases. The Company raised its first quarter Adjusted EPS guidance to $1.03 to $1.06 and GAAP diluted earnings per share from continuing operations to $0.97 to $1.00. The Company raised its 2014 free cash flow guidance to a range of $5.5 to $5.8 billion from $5.1 to $5.4 billion, and its 2014 cash flow from operations guidance to a range of$7.0 to $7.3 billion from $6.6 to $6.9 billion, reflecting the shift in timing of certain cash receipts to early 2014 from late 2013.

Real Estate Program

During the three months ended December31, 2013, the Company opened 60 new retail drugstores and closed one retail drugstore, one onsite pharmacy, five specialty retail pharmacies and one specialty mail order pharmacy. In addition, the Company relocated 17 retail drugstores. As of December31, 2013, the Company operated 7,717 locations in 46 states, the District of ColumbiaPuerto Rico and Brazil. These locations included 7,660 retail drugstores, 17 onsite pharmacies, 25 retail specialty pharmacy stores, 11 specialty mail order pharmacies and four mail service dispensing pharmacies.

Teleconference and Webcast

The Company will be holding a conference call today for the investment community at 8:30 am (EST) to discuss its quarterly results. An audio webcast of the call will be broadcast simultaneously for all interested parties through the Investor Relations section of the CVS Caremark website at http://info.cvscaremark.com/investors.This webcast will be archived and available on the website for a one-year period following the conference call.

About the Company

CVS Caremark is dedicated to helping people on their path to better health as the largest integrated pharmacy company in the United States. Through the Company's more than 7,600 retail pharmacystores; its leading pharmacy benefit manager serving more than 60 million plan members; and its retail health clinic system, the largest in the nation with approximately 800 MinuteCliniclocations, it is a market leader in mail order, retail and specialty pharmacy, retail clinics, and Medicare PartD Prescription Drug Plans. As a pharmacy innovation company, CVS Caremark continually strives to improve health and lower costs by developing new approaches such as its unique Pharmacy Advisorprogram that helps people with chronic diseases such as diabetes obtain and stay on their medications. Find more information about CVS Caremark at http://info.cvscaremark.com/.

Forward-Looking Statements

This press release contains certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The Company strongly recommends that you become familiar with the specific risks and uncertainties outlined in our Securities and Exchange Commission filings, including those in the Risk Factors section in our Annual Report on Form10-K for the year ended December 31, 2013.

 
Keywords: Research, Reports & Publications | CEO Larry Merlo | Research, Reports & Publications | cvs | cvs caremark | pharmacy

CAMPAIGN: Leader in Growth

CONTENT: Press Release

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