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CVS’ Q3 sales and earnings top projections

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Company again raises full-year guidance

WOONSOCKET, R.I. — CVS Health beat Wall Street’s projections for third quarter sales and earnings, and again lifted its full-year guidance as store traffic rose for prescriptions and COVID-19 shots.

Karen Lynch

Karen Lynch

Adjusted earnings per share for the three months ended September 30 jumped 18.7% from a year earlier to $1.97, topping the average analyst prediction of $1.79. Total revenue advanced 10% to $73.8 billion, also exceeding expectations, and net income rocketed 30% to $1.59 billion.

The company now projects 2021 adjusted EPS to range from $7.90 to $8, up from the $7.70 to $7.80 forecast it issued in August. It revised its GAAP diluted EPS guidance range to $6.13 to $6.23 from $6.35 to $6.45. It also raised its cash flow from operations guidance range to $13.0 billion to $13.5 billion from $12.5 billion to $13.0 billion.

“We outperformed expectations once again and continue to lead the way in changing how, when and where care is delivered for millions of Americans,” said president and CEO Karen Lynch. “Our services are responsive to evolving consumer needs, from administering millions of COVID-19 tests and vaccines to offering primary care accessible from virtually anywhere, and our touchpoints allow for unmatched impact.”

CVS administered more than 8 million COVID-19 tests and more than 11 million COVID-19 vaccines nationwide in the third quarter.

GAAP diluted EPS soared 29% to $1.20, up 29.0%. Operating income decreased 5.8% primarily due to a $431 million goodwill impairment charge associated with the long-term care business in the Retail/LTC segment and the absence of a $271 million gain on the sale of the Coventry Health Care Workers’ Compensation business in the 2020 third quarter. The decrease was partially offset by a 12.5% gain in operating income primarily due to the administration of COVID-19 vaccinations and diagnostic testing and increased front store volume in the Retail/LTC segment, as well as improved purchasing economics and growth in specialty pharmacy in the Pharmacy Services segment.

Interest expense decreased $129 million, or 17.6%, due to lower debt. The effective income tax rate decreased to 26.0% compared to 32.5% primarily due to the absence of the impact of the sale of the workers’ compensation business and the repeal of the non-deductible health insurer fee (HIF) for 2021.

Retail/LTC revenue increased 10.0%, driven by the administration of COVID-19 vaccinations and diagnostic testing, increased prescription and front store volume _ both of which were adversely impacted by the pandemic a year earlier _ as well as by brand inflation. These increases were partially offset by continued pharmacy reimbursement pressure and the impact of recent generic introductions. COVID-19 vaccinations, diagnostic testing and over-the-counter test kit sales contributed approximately 40% of the sales increase, as the prior year reflected the ongoing expansion of the diagnostic testing program which began in April 2020 and no COVID-19 vaccinations or OTC test kit sales.

Adjusted operating income increased 22.0%, driven by COVID-19 vaccinations and diagnostic testing, the increased prescription and front store volume and improved generic drug purchasing. These increases were partially offset by continued pharmacy reimbursement pressure and increased investments in the segment’s capabilities and colleague compensation and benefits. COVID-19 vaccinations, diagnostic testing and OTC test kit sales contributed approximately one-third of the segment’s adjusted operating income.

Prescriptions filled increased 8.0% on a 30-day equivalent basis, 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 COVID-19 pandemic last year. Excluding the impact of COVID-19 vaccinations, prescriptions filled increased 4.9% on a 30-day equivalent basis.

In the Pharmacy Services segment total revenues increased 9.3%, primarily driven by increased pharmacy claims volume, growth in specialty pharmacy and brand inflation, partially offset by continued price compression. Adjusted operating income increased 9.5%, primarily driven by improved purchasing economics which reflected increased contributions from the products and services of the group purchasing organization and specialty pharmacy (including pharmacy and/or administrative services for providers and 340B covered entities). These increases were partially offset by continued price compression.

In the Health Care Benefits segment total revenues increased 9.5%, primarily driven by growth in the Government Services business, partially offset by the unfavorable impact of the HIF repeal.

Adjusted operating income increased 2.4%. The increase in adjusted operating income was primarily driven by improved performance in the underlying Government Services business, largely offset by higher COVID-19 related costs, net of deferred care.


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