10-QPeriod: Q2 FY2009

CVS HEALTH Corp Quarterly Report for Q2 Ended Jun 30, 2009

Filed August 4, 2009For Securities:CVS

Summary

CVS Health Corporation (CVS) reported a strong second quarter and first half of 2009, demonstrating significant revenue growth driven by the strategic acquisition of Longs Drug Stores and RxAmerica. Net revenues for the second quarter increased by 17.5% year-over-year to $24.9 billion, and for the first half, they grew by 13.7% to $48.3 billion. This top-line expansion translated into improved profitability, with net earnings available to common shareholders rising by 14.4% in the quarter to $886.5 million and by 6.7% in the first half to $1.62 billion. The company's performance was bolstered by solid contributions from both its Pharmacy Services and Retail Pharmacy segments. The Pharmacy Services segment saw increased net revenues due to the integration of RxAmerica and growth in mail service claims, while the Retail Pharmacy segment benefited from the Longs acquisition and strong same-store sales growth, particularly in pharmacy. Despite increased interest expenses due to higher average debt balances, the company managed its effective tax rate well, maintaining profitability. CVS Health demonstrated a healthy cash flow from operations, which, combined with strategic debt financing and sale-leaseback transactions, provided ample liquidity. The company also continued its commitment to shareholder returns by increasing its quarterly dividend and resuming its share repurchase program. Overall, CVS Health presented a picture of robust operational performance, strategic execution through acquisitions, and prudent financial management.

Financial Highlights

53 data points
Beta

Revenue

$24.87B

20.3% Gross Margin

Net Income

$887.00M

3.6% Net Margin

EPS (Diluted)

$0.60

Total Assets

$61.04B

Cash & Equivalents

$1.23B

Free Cash Flow

-$73.00M

Financial Statements
Beta
Revenue$24.87B
Cost of Revenue$19.82B
Gross Profit$5.05B
Operating Expenses$3.45B
Operating Income$1.60B
Interest Expense$129.00M
Net Income$887.00M
EPS (Basic)$0.61
EPS (Diluted)$0.60
Shares Outstanding (Basic)1.46B
Shares Outstanding (Diluted)1.47B

Key Highlights

  • 1Net revenues increased by 17.5% to $24.9 billion in Q2 2009 and by 13.7% to $48.3 billion in H1 2009, largely due to the Longs and RxAmerica acquisitions.
  • 2Net earnings available to common shareholders grew by 14.4% to $886.5 million in Q2 2009 and by 6.7% to $1.62 billion in H1 2009.
  • 3Pharmacy Services segment revenues grew to $13.0 billion in Q2 and $24.5 billion in H1, driven by RxAmerica integration and increased mail service claims.
  • 4Retail Pharmacy segment revenues rose to $13.8 billion in Q2 and $27.3 billion in H1, boosted by the Longs acquisition and robust same-store sales growth.
  • 5Gross profit increased significantly, reflecting the revenue growth and benefits from higher generic drug utilization.
  • 6Net cash provided by operating activities was $1.32 billion for H1 2009.
  • 7The company increased its quarterly common stock dividend and resumed its share repurchase program.

Frequently Asked Questions

The primary drivers of revenue growth in the second quarter of 2009 were the acquisitions of Longs Drug Stores Corporation and RxAmerica, LLC, which significantly expanded the company's retail footprint and pharmacy benefit management capabilities. Organic growth within both the Pharmacy Services and Retail Pharmacy segments also contributed positively.

The Longs acquisition was a significant contributor to both revenue and operating expenses. It added approximately $1.9 billion in net revenue during the second quarter of 2009. While it increased operating expenses due to integration costs, the overall impact on net earnings was positive, reflecting the strategic expansion.

CVS Health experienced an increase in net interest expense primarily due to higher average debt balances related to financing the Longs acquisition. Despite this, the company's overall profitability (net earnings) saw a healthy increase year-over-year, indicating effective cost management and operational efficiencies that offset the higher interest burden.

CVS Health anticipates funding future growth through operating cash flows, supplemented by short-term and long-term borrowings. The company also actively uses sale-leaseback transactions to finance new store development. They maintained strong operating cash flow and managed investments effectively, reducing net cash used in investing activities compared to the prior year.