10-QPeriod: Q1 FY2011

CVS HEALTH Corp Quarterly Report for Q1 Ended Mar 31, 2011

Filed May 5, 2011For Securities:CVS

Summary

CVS Health Corporation (CVS) reported its first-quarter 2011 results, showing solid revenue growth driven by both its Pharmacy Services and Retail Pharmacy segments. Net revenues increased by 8.9% year-over-year to $25.9 billion. While gross profit remained relatively flat in dollar terms, the gross profit margin saw a slight compression, primarily due to pricing pressures in the Pharmacy Services segment. Diluted earnings per share were $0.52, a decrease from $0.55 in the prior year period, reflecting these margin pressures. The company continues to execute its strategic initiatives, including expansion in the Retail Pharmacy segment with new store openings and growth in same-store sales. The Pharmacy Services segment benefited from a new contract with a large health insurance carrier and increased claim volumes. Despite the competitive landscape and ongoing legal and regulatory matters, CVS Health demonstrated a strong operating cash flow of $1.9 billion and actively managed its capital through share repurchases and debt management.

Financial Highlights

56 data points
Beta

Revenue

$25.70B

18.5% Gross Margin

Net Income

$712.00M

2.8% Net Margin

EPS (Diluted)

$0.52

Total Assets

$62.83B

Cash & Equivalents

$2.16B

Free Cash Flow

$1.56B

Financial Statements
Beta
Revenue$25.70B
Cost of Revenue$20.95B
Gross Profit$4.74B
Operating Expenses$3.44B
Operating Income$1.30B
Interest Expense$135.00M
Net Income$712.00M
EPS (Basic)$0.52
EPS (Diluted)$0.52
Shares Outstanding (Basic)1.36B
Shares Outstanding (Diluted)1.37B

Key Highlights

  • 1Net revenues increased by 8.9% to $25.9 billion, driven by growth in both Pharmacy Services and Retail Pharmacy segments.
  • 2Diluted Earnings Per Share (EPS) decreased to $0.52 from $0.55 in the prior year period.
  • 3Gross profit dollars remained stable at $4.75 billion, but gross profit margin declined due to pricing pressures in the Pharmacy Services segment.
  • 4Operating cash flow was strong, reaching $1.9 billion for the quarter.
  • 5The company repurchased approximately $467 million of common stock under its $2.0 billion repurchase program during the quarter.
  • 6CVS Health expanded its retail footprint with a net increase of new stores and reported positive same-store sales in its Retail Pharmacy segment.
  • 7A significant subsequent event disclosed was the acquisition of Universal American Corp.'s Medicare Part D business for $1.25 billion, effective April 29, 2011.

Frequently Asked Questions

The revenue increase was primarily driven by a new long-term contract to provide Pharmacy Benefit Management (PBM) services to a large health insurance carrier, which became effective January 1, 2011. Additionally, positive same-store and new store sales in the Retail Pharmacy segment contributed to the growth.

The gross profit margin decreased primarily due to pricing compression in the Pharmacy Services segment. This was influenced by contract renewals, particularly with a large government client, and competitive pressures in the PBM industry, which led to sharing a larger portion of manufacturer rebates and discounts. Pricing associated with the new health insurance carrier contract also impacted margins.

While CVS Health acknowledges numerous ongoing legal proceedings and investigations, management stated that it does not believe the outcome of any of these matters will have a material adverse effect on the Company's consolidated financial condition, results of operations, or future cash flows. However, they caution that future developments could lead to material adverse effects.

Shortly after the quarter ended, on April 29, 2011, CVS Health acquired the Medicare prescription drug business of Universal American Corp. for $1.25 billion, which significantly expands its presence in the Medicare Part D program.