10-QPeriod: Q1 FY2013

CVS HEALTH Corp Quarterly Report for Q1 Ended Mar 31, 2013

Filed May 1, 2013For Securities:CVS

Summary

CVS Health Corporation (CVS) reported mixed results for the first quarter ended March 31, 2013. While net revenues remained relatively flat year-over-year, decreasing by a slight 0.1% to $30.8 billion, the company demonstrated improved profitability. Net income attributable to CVS Caremark increased significantly by 23.3% to $956 million, leading to a substantial 30% rise in basic earnings per share from continuing operations to $0.78 and diluted EPS from continuing operations to $0.77. This earnings growth was driven by a robust increase in gross profit, up 9.1%, primarily due to a higher generic dispensing rate across both the Pharmacy Services and Retail Pharmacy segments, and improved gross margins in the Retail Pharmacy segment. Despite the positive earnings trend, operating expenses increased by 4.7% driven by higher store operating costs and legal expenses. The company also saw a decrease in net cash provided by operating activities, largely due to a timing difference in Medicare Part D payments. CVS Health continued its share repurchase program, buying back approximately $393 million of common stock. The company faces ongoing legal proceedings and investigations, though management believes these will not have a material adverse effect. Overall, the quarter shows operational improvements leading to enhanced profitability, but investors should note the increased operating expenses and cash flow dynamics.

Financial Highlights

55 data points
Beta

Revenue

$30.75B

18.1% Gross Margin

Net Income

$954.00M

3.1% Net Margin

EPS (Diluted)

$0.77

Total Assets

$66.07B

Cash & Equivalents

$1.55B

Free Cash Flow

$1.32B

Financial Statements
Beta
Revenue$30.75B
Cost of Revenue$25.17B
Gross Profit$5.58B
Operating Expenses$3.88B
Operating Income$1.69B
Interest Expense$127.00M
Net Income$954.00M
EPS (Basic)$0.77
EPS (Diluted)$0.77
Shares Outstanding (Basic)1.23B
Shares Outstanding (Diluted)1.24B

Key Highlights

  • 1Net income attributable to CVS Caremark increased by 23.3% to $956 million.
  • 2Basic earnings per common share from continuing operations rose to $0.78, a 30% increase from the prior year.
  • 3Gross profit increased by 9.1% to $5.58 billion, driven by higher generic dispensing rates.
  • 4Net revenues remained stable, decreasing by only 0.1% to $30.76 billion.
  • 5Operating expenses increased by 4.7% to $3.88 billion, primarily due to higher store operating costs and legal expenses.
  • 6Net cash provided by operating activities decreased by $1.15 billion to $1.64 billion, mainly due to timing of Medicare Part D payments.
  • 7The company repurchased approximately $393 million of its common stock under its share repurchase program.

Frequently Asked Questions

The significant increase in net income and earnings per share was primarily driven by a substantial improvement in gross profit, which grew by 9.1%. This was largely attributable to an increased generic dispensing rate across both the Pharmacy Services and Retail Pharmacy segments, coupled with improved gross margins in the Retail Pharmacy segment.

The decrease in net cash provided by operating activities was mainly due to a timing difference in the receipt of Medicare Part D payments from CMS. An advance payment received in March 2012 for April 2012 premiums and claims was not repeated in the same manner in the current year, with the April 2013 payment received in April 2013.

CVS Health has an active share repurchase program, authorizing up to $6.0 billion. In the first quarter of 2013, the company repurchased approximately 7.4 million shares for about $393 million. As of March 31, 2013, there was approximately $4.3 billion remaining authorization for future repurchases.

CVS Health is involved in several legal proceedings and government investigations, including matters related to its PBM operations, Medicaid claims processing, antitrust allegations, and securities disclosures. While the company has settled some matters, such as the Texas Medicaid claims, ongoing investigations and potential outcomes from other litigation remain a factor. Management currently believes that these matters, individually or in aggregate, will not have a material adverse effect, but they are subject to significant uncertainties.