WOONSOCKET, R.I. — CVS Health reported on Wednesday fourth quarter earnings and revenue that beat Wall Street’s expectations. The results were aided by higher sales in its pharmacy benefit management business.
The company also announced some leadership changes, including the departure of CVS Caremark president Derica Rice and his replacement by Dr. Alan Lotvin, who had led CVS’ transformation efforts.
“As we work to transform the way health care is delivered to millions of Americans, we are driving continued business performance and generating positive momentum across the enterprise. Our fourth quarter and full-year financial results reflect strong financial and operational execution and a successful first year of integrating the Aetna business. We’re using our unmatched capabilities to create a higher-quality, simpler and more affordable health care experience, which benefits patients, clients and consumers and positions the company for continued success,” said Larry Merlo, president and chief executive officer.
Merlo continued, “As a result of the significant progress we made in 2019, and meeting or exceeding our expectations for the year, we raised our outlook for 2020. Client, patient and consumer reception to our innovative product and service offerings, including our HealthHUB locations, has been positive. We are confident that we’re on the right path to delivering significant value for all our stakeholders, which is a testament to the efforts of the nearly 300,000 CVS Health employees who work tirelessly to deliver these results while staying true to our purpose of helping people on their path to better health.”
The drug store chain expects 2020 earnings between $7.04 per share and $7.17 per share.
On an unadjusted basis, CVS earned $1.75 billion, or $1.33 a share, during the three months ended December. 31. That compares with a loss of $419 million, or 37 cents a share, during the same quarter in 2018. Operating income increased by 1.3% in the fourth quarter to $3.8 billion.
Total revenues and adjusted revenues increased 22.9% and 23.1%, respectively, for the quarter and full year. Total revenues and adjusted revenues increased 32.0% and 32.3%, respectively. Revenue growth in both periods was primarily due to the impact of the acquisition of Aetna as well as increased volume and brand inflation in both the Pharmacy Services and Retail/LTC segments. The revenue increase in both periods was partially offset by continued price compression in the Pharmacy Services segment, continued reimbursement pressure in the Retail/LTC segment and an increased generic dispensing rate.
Operating expenses increased 30.9% and 57.0% , respectively, primarily also due to the impact of the Aetna Acquisition, including increased intangible asset amortization. The increase for the year was also due to the $231 million of store rationalization charges and the $205 million pre-tax loss on the sale of the company’s Brazilian subsidiary, Drogaria Onofre Ltda. The increase for the quarter was partially offset by lower acquisition-related transaction and integration costs.
Adjusted operating income increased 1.3% and 36.2%, respectively. The increase in both periods was primarily due to the Aetna Acquisition as well as increased volume and improved purchasing economics in the Pharmacy Services and Retail/LTC segments, partially offset by continued reimbursement pressure in the Retail/LTC segment and continued price compression in the Pharmacy Services segment.
CVS’s health benefits business more than doubled in revenue from $6.24 billion during the last three months of 2018 to $17.15 billion during the fourth quarter, thanks largely to the acquisition of Aetna as well.
The retailer also announced a series of leadership assignments to support the company’s continued focus on innovation and strategic growth.
“We have set a clear and bold path for CVS Health to be the most consumer-centric health company and transform the way care is delivered, and we have laid a strong foundation for growth following more than a year of successfully integrating the Aetna business,” said Merlo. “As we continue to innovate and execute we will stay close to the markets we serve and respond to the needs of our clients. The assignments announced today place our leaders in areas where their unique experience and deep business relationships will help us deliver on our core growth initiatives and transformation strategies.”
• Lotvin will also have oversight of CVS Specialty and CVS Kidney Care. Lotvin has deep experience in the pharmacy benefit management (PBM) business, with expertise in specialty pharmacy. With the growing importance of specialty medicines and gene therapy management, he is uniquely positioned to lead the company’s next wave of growth in this area.
• Jonathan Mayhew has been appointed executive vice president, transformation, and will be responsible for the transformation product portfolio. Mayhew has diverse health care experience, most recently serving as senior vice president for the Aetna Markets organization. He has a demonstrated track record of building and growing businesses to serve needs in the marketplace and is uniquely positioned to bring CVS Health’s transformation products to life across the company’s open access platform.
• Alec Cunningham has been appointed executive vice president and CEO for the Aetna business and will lead an expanded organization that will focus on Medicare Advantage and government programs overall an area of growing importance. Cunningham joined CVS Health last year from Concerto Healthcare, a leading provider organization that serves dual-eligible Medicare and Medicaid patients as well as complex medical needs patients.
Rice will remain with the company through February to help ensure a seamless transition. “I want to thank Derica for his leadership during a period of significant growth and evolution for our PBM business, and wish him the best in his future endeavors,” said Merlo. “I am confident we are driving a sea change in how our key stakeholders think about us, and how consumers partner with us to take control of their health. These new assignments will accelerate that process.”