10-QPeriod: Q1 FY2010

CVS HEALTH Corp Quarterly Report for Q1 Ended Mar 31, 2010

Filed May 4, 2010For Securities:CVS

Summary

CVS Caremark Corporation reported a modest increase in net revenues for the first quarter of 2010, reaching $23.76 billion, up from $23.39 billion in the same period of 2009. This growth was driven by the Pharmacy Services segment, partly due to accounting changes in contract revenue recognition for RxAmerica, and by same-store sales and new store openings in the Retail Pharmacy segment. While gross profit remained relatively stable year-over-year, operating expenses saw a decrease, contributing to a rise in operating profit to $1.41 billion from $1.38 billion. Net income attributable to CVS Caremark increased to $771 million, translating to diluted earnings per share of $0.55, up from $0.50 in the prior year. The company also demonstrated a strong operating cash flow of $1.06 billion, a significant improvement from $771 million in Q1 2009. Despite facing headwinds from client contract terminations and competitive pressures in the PBM market, CVS Caremark continues to execute its growth strategy, including share repurchases and dividend increases, while navigating a complex regulatory and legal environment.

Financial Highlights

56 data points
Beta

Revenue

$23.59B

20.1% Gross Margin

Net Income

$770.00M

3.3% Net Margin

EPS (Diluted)

$0.55

Total Assets

$61.28B

Cash & Equivalents

$1.05B

Free Cash Flow

$659.00M

Financial Statements
Beta
Revenue$23.59B
Cost of Revenue$19.01B
Gross Profit$4.74B
Operating Expenses$3.34B
Operating Income$1.40B
Interest Expense$129.00M
Net Income$770.00M
EPS (Basic)$0.56
EPS (Diluted)$0.55
Shares Outstanding (Basic)1.39B
Shares Outstanding (Diluted)1.40B

Key Highlights

  • 1Net revenues grew by 1.6% to $23.76 billion in Q1 2010 compared to $23.39 billion in Q1 2009.
  • 2Income from continuing operations attributable to CVS Caremark increased by 3.9% to $772 million.
  • 3Diluted earnings per common share rose to $0.55 from $0.50 in the prior year's quarter.
  • 4Net cash provided by operating activities significantly increased to $1.06 billion from $771 million.
  • 5Operating expenses decreased by $35 million, primarily due to lower litigation and integration costs.
  • 6The company repurchased approximately $887 million of common stock in the first quarter of 2010.
  • 7Dividends declared per common share increased to $0.08750 from $0.07625 year-over-year.

Frequently Asked Questions

Net revenues increased primarily due to growth in the Pharmacy Services segment, boosted by the conversion of RxAmerica pharmacy network contracts to the Caremark contract structure (leading to revenue being recognized on a gross basis). The Retail Pharmacy segment also contributed with same-store sales growth and revenue from new store openings.

Profitability saw an improvement. Operating profit increased to $1.41 billion from $1.38 billion. Net income attributable to CVS Caremark rose to $771 million, resulting in higher diluted earnings per share of $0.55 compared to $0.50 in the prior year. This was supported by lower operating expenses and interest expenses.

The company reported a strong increase in net cash provided by operating activities, which rose to $1.06 billion in the first quarter of 2010, up from $771 million in the same period of 2009. This indicates solid operational cash generation.

Yes, CVS Caremark is involved in several ongoing legal and regulatory matters. These include investigations by the FTC and various State Attorneys General regarding business practices, subpoenas from the OIG concerning Medicare and Medicaid claims processing, and various lawsuits related to antitrust, securities, and labor practices. While management believes these matters will not have a material adverse effect, they represent potential risks and ongoing costs.