) reported fourth-quarter 2012 EPS of 90 cents, up 11.1% year
over year. However, excluding the loss on early extinguishment of
debt in the fourth quarter of 2012 and other one-time expenses,
the adjusted EPS came in at $1.14, representing a beat of 3.6%
over the Zacks Consensus Estimate. This reflects the fourth
consecutive quarterly earnings beat for CVS.
Adjusted EPS in 2012 (excluding the loss on early extinguishment
of debt) was $3.43, edging past the Zacks Consensus Estimate by
Net revenue increased 10.9% year over year to $31.4 billion in
the quarter, surpassing the Zacks Consensus Estimate of $31.1
billion. Total revenues in 2012 surged 15% from the prior year to
$123.1 billion beating the corresponding Zacks Consensus Estimate
of $122.8 billion.
segment posted a robust 17.4% increase in revenues to $18.6
billion in the fourth quarter. CVS benefited from client
additions during the 2012 selling season, drug cost inflation and
growth in the Medicare Part D program.
The higher claims related to Medicare Part D program and client
wins also led to 6.5% year-over-year growth in CVS' pharmacy
network claims to 205.5 million. The new client gains and ongoing
adoption of the Maintenance Choice program increased the Mail
Choice claims processed to 20.4 million, up 14.6% on a
Revenues from CVS'
improved 5.1% year over year to $16.3 billion. Same-store sales
increased 4% while front-end same store sales grew 3.9% year over
Favorable calendar day shifts during the fourth quarter with
an additional Monday and one lesser Saturday improved pharmacy
same-store sales by roughly 80 basis points (bps). However, the
generic wave in the pharmaceutical industry negatively affected
the pharmacy same-store sales by 11 percentage points.
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Moreover, counting 90-day scripts as one script, pharmacy
same-store prescription volumes climbed 9% from the year-ago
quarter. When 90-day scripts were converted into 3 scripts,
same-store prescription volumes increased 11% from the prior-year
The generic dispensing rate (the proportion of all generic
prescriptions to total number of prescriptions dispensed) soared
500 bps to 80% in the Pharmacy Services segment and 400 bps to
79.9% in the Retail Pharmacy segment.
Gross margin expanded 44 bps to 20.1% on the back of higher
profitability across both segments. Operating expenses were up
11% on a year-over-year basis to roughly $4 billion in the
quarter. However, operating margin increased 40 bps to 7.3%.
CVS exited 2012 with cash and cash equivalents of $1.38 billion,
down 2.7% from 2011. Annual net cash provided by operating
activities increased 13.9% to $6.7 billion. This resulted in free
cash flow of almost $5.2 billion in 2012, up approximately 13%
from the prior year.
During the fourth quarter, CVS opened 37 new retail drugstores,
closed 2 retail drugstores and relocated 8 retail drugstores. As
of Dec 31, 2012, CVS operated 7,525 locations, which include
7,458 retail drugstores, 19 onsite pharmacies, 31 retail
specialty pharmacy stores, 12 specialty mail order pharmacies and
5 mail order pharmacies in 45 states, as well as the District of
Columbia and Puerto Rico.
Anticipating a benefit of 2 cents per share from the debt tender
offer and refinancing during the fourth quarter, CVS expects
adjusted EPS of $3.86 − $4.00 for 2013. The current Zacks
Consensus Estimate of $3.91 lies within the guidance range.
The company envisages 2013 free cash flow and cash flow from
operations in the range of $4.8 - $5.1 billion and $6.4 - $6.6
billion, respectively. The guidance includes the completion of
the accelerated share repurchase agreement of $4 billion.
For the first quarter of 2013, CVS expects adjusted EPS in the
band of 77 and 80 cents. The current Zacks Consensus Estimate of
78 cents is within the company's outlook.
A profound mix of favorable industry dynamics, benefits from
client wins from the earlier
) impasse and increasing shareholder value continue to drive
growth at CVS.
In light of these facts, the estimate revision trend reflects a
bullish sentiment toward the company. Accordingly, the stock
carries a Zacks Rank #2 (Buy). Besides CVS,
), carrying a Zacks Rank #1 (Strong Buy), is also expected to do
well and warrants a look.