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CVS Health tops 2Q forecasts, books charge of nearly $4B

  • FILE- This Dec. 3, 2017, file photo shows a CVS Pharmacy in the Brooklyn borough of New York. CVS Health reports earnings Wednesday, Aug. 8, 2018. Photo: Mark Lennihan, AP / Copyright 2017 The Associated Press. All rights reserved.



CVS Health beat Wall Street’s second-quarter expectations, helped by rising prescription sales, though a nearly $4 billion charge from one of the company’s businesses led to a loss.

The drugstore chain and pharmacy benefits manager said Wednesday that it has struggled to grow its long-term care business as much as it expected after spending more than $10 billion to acquire Omnicare in 2015. It cited lower occupancy rates in skilled nursing facilities and the financial struggles of its customers. Omnicare provides pharmacy services to nursing homes and other clients.

The company booked a charge of $3.9 billion in the quarter after a goodwill impairment test showed that the fair value of that business was lower than the carrying value.

That and some costs tied to its pending $69 billion acquisition of the health insurer Aetna led to a $2.56 billion loss in the quarter, compared with a $1.1 billion profit during the same period last year.

CVS may acquire health insurer Aetna in a $66 million bid. The Wall Street Journal reported CVS offered $200 a share, which boosted Aetna’s shares by 12 percent. Caremark, the benefit management subsidiary of CVS, handles prescription-drug programs for some of the biggest companies and health insurers. In the past, CVS has also bought Target’s pharmacy business. “Aetna participants are likely to see the most benefit … because CVS would be maybe able to offer them lower co-pays if they shop with them.” Joseph Agnese, a senior analyst at CFRA told USA Today

Media: Brandpoint

But adjusted earnings, which don’t count one-time items like charges, came in at $1.69 per share. Revenue rose 2 percent to about $46.7 billion.

Analysts predicted earnings of $1.61 per share on $46.32 billion in revenue, according to FactSet.

Overall, the company had a good quarter, Edward Jones analyst John Boylan said in a research note. He added that the Omnicare charge was a surprise, but he was already expecting modest results from that business.

CVS Health Corp., based in Woonsocket, Rhode Island, runs more than 9,800 retail locations and processes over a billion prescriptions annually as a pharmacy benefit manager.

The company saw sales from established locations jump nearly 6 percent in the quarter, even though business from the front end of its stores, or the area outside the pharmacy, continued to slump. CVS Health said it sold more prescriptions, helped in part by alliances with pharmacy benefit managers and health plans and the addition of several Medicare prescription drug coverage networks.

Revenue from the company’s biggest business segment, its pharmacy benefit management operation, climbed nearly 3 percent to about $33.2 billion.

CVS said Wednesday that it now expects to earn between $6.98 and $7.08 per share this year, a forecast that is narrower than the per-share range of between $6.87 and $7.08 that the company put out in May.

Analysts expect, on average, earnings of $6.97 per share.

Regulators are still reviewing the Aetna deal, but CVS Health expects to close that transaction either late in the third quarter or early in the fourth.

Company executives have said they want to use this combination to move deeper into managing customer health and to expand the care CVS provides through all of its retail locations. They see a big opportunity to help people with chronic conditions like diabetes keep up with their care and improve their health.

That proactive approach to health care is growing, as doctors and insurers push more to keep people healthy and out of hospitals instead of waiting to treat them once they become sick.

Shares of CVS Health climbed 3 percent to $67.50 Wednesday morning, as broader indexes slipped. The stock had dropped nearly 10 percent so far this year.

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