Adjusted earnings for the three months ended September 30 slipped 9.8% from the year-ago period to $1.66 per share, but were still well ahead of analysts’ projection of $1.33 per share. Revenue advanced 3.5% to $67.1 billion, topping Wall Street’s forecast of $66.57 billion. Same-store sales climbed 5.7% from last year, more than double what analysts had expected.
For the full year, CVS predicted adjusted earnings in the region of $7.35 to $7.45 per share, up from an earlier outlook of $7.14 to $7.27 per share. It raised its cash flow guidance range to $12.75 billion to $13.25 billion from $11.0 billion to $11.5 billion.
“Our strong third quarter results demonstrate continued execution of our long-term strategic plan that is transforming the way health care is delivered,” said president and CEO Larry Merlo. “As an integrated health services provider, we’re developing holistic and innovative solutions that meet the needs of our customers in the community, in the home or in the palm of their hand.
“Our comprehensive pandemic response shows the power of a diverse and agile enterprise. We’ve opened more than 4,000 COVID-19 test sites across the country since March, and have administered over six million tests. We’re helping businesses and universities safely reopen and we were recently selected to administer COVID-19 vaccinations in long-term care facilities. We’ll continue to play a vital role in our nation’s recovery thanks to the tireless efforts of our nearly 300,000 employees.”
Operating income in the quarter climbed 11% to $3.25 billion, while adjusted operating income slid 8.2% to $3.62 billion. Net income fell 20.3% to $1.22 billion.
The operating income gain was primarily due to a $271 million pre-tax gain on the sale of the Coventry Health Care workers’ compensation business on July 31, as well as the absence of a $205 million pre-tax loss on the sale of CVS’ Brazilian subsidiary, Drogaria Onofre Ltda. and a $96 million store rationalization charge, both recorded in the 2019 third quarter. This increase was partially offset by the decrease in adjusted operating income.
That decrease was primarily due to declines in the Health Care Benefits segment, largely attributable to the impact of planned COVID-19 related investments benefiting customers and members, and continued reimbursement pressure in the Retail/LTC segment. These decreases were partially offset by improved purchasing economics in the Pharmacy Services segment and the favorable impact of enterprisewide cost savings initiatives.
The net income decrease was mainly attributable to an increase in the loss on early extinguishment of debt to $766 million compared to $79 million in the year-ago period. The decrease was partially offset by the higher operating income.
The effective income tax rate was 32.5% for the quarter compared to 28.3% a year earlier. The increase was primarily attributable to basis differences on the sale of the workers’ compensation business and the reinstatement of the nondeductible Health Insurer Fee (HIF) for 2020. These increases were partially offset by the absence of the impact of the sale of Onofre.
In the Pharmacy Services segment, total revenues decreased 0.9%, primarily as a result of previously disclosed client losses and continued price compression, partially offset by growth in specialty pharmacy and brand inflation.
Total pharmacy claims processed increased 3.7% on a 30-day equivalent basis, primarily driven by net new business, partially offset by reduced new therapy prescriptions as a result of COVID-19.
Operating income and adjusted operating income increased 16.7% and 12.5%, primarily driven by improved purchasing economics and growth in specialty pharmacy. The increase was partially offset by continued price compression and previously disclosed client losses. The increase in operating income also was driven by lower amortization expense.
In the Retail/LTC segment, total revenues increased 5.9%, primarily driven by increased prescription volume, higher front store revenues, increased diagnostic testing and brand inflation. These increases were partially offset by continued reimbursement pressure and the impact of recent generic introductions.
Front store revenues increased 2.7%. The increase was primarily due to strength in consumer health sales and an increase in basket size, partially offset by decreased store traffic as a result of the COVID-19 pandemic.
Prescriptions filled increased 4.6% on a 30-day equivalent basis, primarily driven by the continued adoption of patient care programs. Prescriptions filled were adversely impacted by the pandemic, which resulted in reduced new therapy prescriptions, partially offset by greater use of 90-day prescriptions and increased immunizations.
Operating income increased 17.2, primarily driven by the absence of the $205 million pre-tax loss on the sale of Onofre and last year’s $96 million store rationalization charge primarily related to operating lease right-of-use asset impairment charges in connection with the planned closure of underperforming retail pharmacy stores. This increase was partially offset by a 6.9% decrease in adjusted operating income.
The decrease in adjusted operating income was primarily due to continued reimbursement pressure, incremental operating expenses associated with the company’s pandemic response efforts in the three months and declines in long-term care. These decreases were partially offset by the increased pharmacy and front store volume, improved generic drug purchasing and increased diagnostic testing in response to the pandemic.
In the Health Care Benefits segment, revenues increased 8.8%, primarily driven by membership growth in government products and the favorable impact of the reinstatement of the HIF. These increases were partially offset by the divestitures of Aetna’s standalone Medicare Part D prescription drug plans (which the company retained the financial results of through 2019) and workers compensation business, membership declines in the segment’s commercial products and planned COVID-19 related investments benefiting customers and members.
Operating income and adjusted operating income decreased 8.4% and 24.1%, respectively. The decrease in both operating income and adjusted operating income was primarily driven by the planned COVID-19 related investments and the divestitures of Aetna’s standalone Medicare Part D prescription drug plans (PDPs) and workers’ compensation business. The decrease in operating income was partially offset by the $271 million pre-tax gain on the sale of the workers’ compensation business.