10-QPeriod: Q2 FY2008

CVS HEALTH Corp Quarterly Report for Q2 Ended Jun 28, 2008

Filed July 31, 2008For Securities:CVS

Summary

CVS Health Corporation (CVS) reported a solid increase in net revenues for the 26 weeks ended June 28, 2008, primarily driven by the integration of Caremark Rx, Inc. Net earnings available to common shareholders also saw a significant rise. The company experienced revenue growth across both its Retail Pharmacy and Pharmacy Services segments. The Pharmacy Services segment's revenue was substantially boosted by the full inclusion of Caremark's operations post-merger. The Retail Pharmacy segment demonstrated growth through increased sales, new store openings, and a strategic relocation program. Despite increased operating expenses, partly due to integration costs and amortization of acquired intangible assets, the company's profitability improved, with a notable increase in operating profit. CVS Health also managed its debt effectively, with a decrease in net cash used in investing activities due to lower acquisition spending compared to the previous year. The company reaffirmed its commitment to shareholder returns through dividends and share repurchases.

Financial Highlights

31 data points
Beta

Revenue

$21.14B

20.7% Gross Margin

Net Income

$774.80M

3.7% Net Margin

EPS (Diluted)

$0.53

Cash & Equivalents

$615.70M

Free Cash Flow

$436.80M

Financial Statements
Beta
Revenue$21.14B
Cost of Revenue$16.77B
Gross Profit$4.37B
Operating Expenses$2.90B
Operating Income$1.48B
Net Income$774.80M
EPS (Basic)$0.54
EPS (Diluted)$0.53
Shares Outstanding (Basic)1.43B
Shares Outstanding (Diluted)1.47B

Key Highlights

  • 1Net revenues increased by 8.6 billion for the 26 weeks ended June 28, 2008, largely due to the Caremark merger.
  • 2Net earnings available to common shareholders rose to $1,516.2 million for the 26 weeks ended June 28, 2008, from $1,125.5 million in the prior year.
  • 3The Retail Pharmacy segment saw a 5.0% increase in net revenues for the 26 weeks ended June 28, 2008, driven by increased sales and store growth.
  • 4The Pharmacy Services segment's net revenues increased significantly due to the full integration of Caremark's operations.
  • 5Operating profit increased to $2,848.2 million for the 26 weeks ended June 28, 2008, up from $2,046.3 million in the prior year.
  • 6Net cash provided by operating activities decreased slightly to $1,392.1 million for the 26 weeks ended June 28, 2008.
  • 7The company repurchased shares under a new $2.0 billion share repurchase program authorized in May 2008.

Frequently Asked Questions

The primary driver of revenue growth was the full inclusion of Caremark's operations following the Caremark Merger, which significantly boosted the Pharmacy Services segment's net revenues. The Retail Pharmacy segment also contributed with increased sales and new store openings.

The Caremark merger led to an increase in operating expenses, primarily due to incremental amortization related to acquired intangible assets and merger-related integration costs. However, the company managed to increase operating profit overall.

CVS Health is focused on funding future growth through operating cash flows and debt. They also continue to return value to shareholders through quarterly dividends and active share repurchase programs, including a new $2.0 billion program authorized in May 2008.

The company has contingent liabilities related to lease guarantees for former subsidiaries, notably Linens 'n Things, which filed for bankruptcy. They also disclosed ongoing litigation, though management believes none are expected to be material to the company's financial condition.