The company will raise its minimum wage to $15 an hour
WOONSOCKET, R.I. — CVS Health posted second-quarter sales and earnings that easily topped analysts’ projections. Strong retail sales helped lift the company’s adjusted profit to $2.42 a share, well ahead of Wall Street’s prediction of $2.07 a share. Revenue climbed 11.1% to $72.62 billion, beating the forecast of $70.24 billion.
The company boosted its fiscal 2021 earnings projection to between $7.70 and $7.80 a share, up from $7.56 to $7.58, and above analysts’ prediction of $7.66.
“We delivered another quarter of strong results and once again raised our outlook for the year,” said president and CEO Karen S. Lynch. “This quarter was highlighted by broad sales and earnings outperformance, as well as sequential operating margin improvement. We continue to play a critical role in helping America prevail against the pandemic while demonstrating the effectiveness of our unique business model, which is focused on meeting customer needs through innovations that make health care more local, affordable and connected.”
CVS also said it would raise wages to $15 an hour starting in July 2022, with incremental increases to hourly rates starting this month. Approximately 65% of employees earning hourly wages already make more than $15 an hour.
“Attracting and retaining top talent across our businesses is critical as we continue to redefine what it means to meet people’s health needs,” said Lynch. “These wage increases will have a meaningful impact on our colleagues and their families while helping the communities we serve prosper. Today’s announcement is the latest in a series of investments in our people, including bonuses and benefit enhancements throughout the pandemic.”
Moving to $15 an hour next year will mark a more than 60% increase in the CVS minimum wage over a four-year period. The new wage structure incorporates additional increases beyond the enterprise minimum, with higher starting hourly rates for roles such as pharmacy technicians and call center representatives.
Operating income and adjusted operating income for the quarter ended June 30 decreased 7.6% and 8.3%, respectively, primarily due to the return of more normalized utilization levels in the Health Care Benefits segment following a significant decrease in utilization during the year-ago second quarter due to the COVID-19 pandemic. The decrease in both operating income and adjusted operating income was partially offset by increased prescription and front store volume, COVID-19 vaccinations and diagnostic testing in the Retail/LTC segment as well as improved purchasing economics and increased pharmacy claims volume in the Pharmacy Services segment.
Interest expense decreased $129 million, or 16.9%. The effective income tax rate was 25.3% compared to 24.6% a year earlier. The increase e was primarily due to the absence of the favorable impact associated with the resolution of several state and local income tax matters, partially offset by the repeal of the non-deductible health insurer fee (“HIF”) for 2021.
CVS paid down $2.4 billion of long-term debt, while returning $650 million to shareholders through dividends. Since the close of the acquisition of Aetna Inc. in November 2018, the company has repaid a net of $17.6 billion in long-term debt.
Retail/LTC revenue increased 14.2%, primarily driven by increased prescription volume, COVID-19 vaccinations and diagnostic testing and higher front store revenues across all product categories. These increases were partially offset by continued pharmacy reimbursement pressure. Prescription and front store volumes a year earlier were adversely impacted by the pandemic, which resulted in lower new therapy prescriptions and reduced front store revenues due to shelter-in-place orders. COVID-19 vaccinations and diagnostic testing contributed nearly a third of the increase in the segment’s revenues, as the prior year included an immaterial impact from diagnostic testing and no COVID-19 vaccinations.
Adjusted operating income soared 93.9%, primarily driven by the increased prescription and front store volume, COVID-19 vaccinations and diagnostic testing and a $125 million gain from an antitrust legal settlement. These increases were partially offset by continued pharmacy reimbursement pressure. COVID-19 vaccinations and diagnostic testing contributed approximately half of the increase in adjusted operating income.
Prescriptions filled increased 14.2% on a 30-day equivalent basis, primarily driven by COVID-19 vaccinations, as well as the continued adoption of patient care programs and increased new therapy prescriptions, both of which were adversely impacted by the pandemic in the 2020 quarter. Excluding the impact of COVID-19 vaccinations, prescriptions filled increased 9.3% on a 30-day equivalent basis.
Health Care Benefits segment revenues climbed 11.1%, primarily driven by growth in the Government Services business, partially offset by the unfavorable impact of the repeal of the HIF for 2021. Adjusted operating income fell 53.4%. The decrease was primarily driven by the deferral of elective procedures and other discretionary utilization in response to the COVID-19 pandemic during the year-ago period.
The MBR increased from 70.3% to 84.1%, primarily driven by the impact of the pandemic last year and the repeal of the HIF for 2021. Medical membership as of June 30, of 23.5 million decreased 116,000 members compared with March 31, 2021, primarily reflecting declines in Medicaid and Commercial products, partially offset by an increase in Medicare products. The decline in Medicaid membership reflects the loss of a large ASC customer.
The segment experienced favorable development of prior periods health care cost estimates, driven by favorable development in its Government Services business, partially offset by slightly unfavorable development in its Commercial business.
Prior years’ health care costs payable estimates developed favorably by $709 million during the six months ended June 30, driven by favorable development in the Government Services and Commercial businesses.
Pharmacy Services segment revenues rose 9.8%, primarily driven by increased pharmacy claims volume, growth in specialty pharmacy and brand inflation, partially offset by continued price compression.
Adjusted operating income jumped 32.3%, primarily driven by improved purchasing economics that reflected products and services of the group purchasing organization launched in the second quarter of 2020 and specialty pharmacy (including pharmacy and/or administrative services for providers and 340B covered entities), as well as increased pharmacy claims volume. These increases were partially offset by continued price compression.
Total pharmacy claims processed increased 11.2% on a 30-day equivalent basis. The increase was primarily driven by net new business, COVID-19 vaccinations and increased new therapy prescriptions, which were adversely impacted by the pandemic a year earlier. Excluding the impact of COVID-19 vaccinations, total pharmacy claims processed increased 8.4% on a 30-day equivalent basis.