) reported first-quarter 2013 earnings per share (EPS) of 77
cents, up 29.9% year over year. However, excluding one-time
expenses, the adjusted EPS rose 28.1% to 83 cents, beating the
Zacks Consensus Estimate of 79 cents.
This reflects the fifth consecutive quarterly earnings beat
for CVS. Moreover, the quarterly result beat the company's
expectation of 77 to 80 cents.
Quarter Under Review
Net revenue decreased 0.1% year over year to $30.8 billion in
the quarter, surpassing the Zacks Consensus Estimate of $30.3
The Pharmacy Services segment revenues clambered 0.1% to $18.3
billion in the quarter. The segment gained from drug cost
inflation and volume growth across all channels. However, the
generic wave in the pharmaceutical industry adversely impacted
the segment revenues.
The higher claims related to Medicare Part D program, a
relatively strong flu season and client wins also led to 4.3%
year over year growth in CVS' pharmacy network claims to 207.1
million. The new client gains and ongoing adoption of the
Maintenance Choice program increased the Mail Choice claims
processed to 20.5 million, up 0.6% on a year-over-year basis.
Revenues from CVS' Retail Pharmacy improved 0.2% year over
year to $16.1 billion. Same-store sales decreased 1.2% while
front-end same store sales grew 1.4% year over year. Despite the
positive impact of a burdensome flu season and Easter holiday in
the quarter, same-store sales declined in the reported
Pharmacy same store sales declined 2.3% from the year-ago
quarter due to generic introductions and absence of leap year in
the last quarter which dragged sales by 925 basis points (bps)
and 70 bps, respectively. On the other hand, favorable calendar
shifts (Easter holiday in Mar 2013) had a positive impact of 65
bps on front-end same store sales in the quarter.
Also, high incidence of flu had a positive impact of 90 bps in
the quarter. However, absence of leap year had an adverse impact
of 120 bps on front-end same store sales.
Moreover, counting 90-day scripts as one script, pharmacy
same-store prescription volumes improved 2% from the year-ago
quarter. When 90-day scripts were converted into 3 scripts,
same-store prescription volumes increased 4.7% from the
The generic dispensing rate (the proportion of all generic
prescriptions to total number of prescriptions dispensed) soared
400 bps to 80.5% in the Pharmacy Services segment and 300 bps to
81.2% in the Retail Pharmacy segment.
Gross margin expanded 150 bps to 18.1% on the back of higher
profitability across both segments due to generic introductions.
Operating expenses were up 4.7% on a year-over-year basis to
roughly $3.9 billion in the quarter. However, operating margin
increased 90 bps to 5.5%.
CVS exited the quarter with cash and cash equivalents of $1.55
billion compared with $1.38 at the end of 2012. Net cash provided
by operating activities declined 41.1% to $1.6 billion. This
resulted in free cash flow of almost $1.32 billion in 2012, down
45.1% from the prior year.
During the first quarter, CVS opened 37 new retail drugstores,
closed 9 retail drugstores and relocated 15 retail drugstores. As
of Mar 31, 2013, CVS operated 7,596 locations, which include
7,531 retail drugstores, 18 onsite pharmacies, 31 retail
specialty pharmacy stores, 12 specialty mail order pharmacies and
4 mail order pharmacies in 45 states, as well as the District of
Columbia and Puerto Rico.
Following the first quarter, CVS narrowed its guidance for
2013 adjusted EPS to the range of $3.89 - $4.00 compared with
$3.86 − $4.00 earlier. The current Zacks Consensus Estimate of
$3.95 lies within the guidance range. The revision is on account
of the impact of the sequestration on the company's Medicare Part
On the other hand, CVS reiterated its expectations for 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 second quarter of 2013, CVS expects adjusted EPS in
the band of 94 cents and 97 cents. The current Zacks Consensus
Estimate of 94 cents tallies with the lower end of the company's
CVS reported another positive quarter to surpass the Zacks
Consensus Estimate. The strong selling season and higher
profitability are material upsides for the company. However, CVS
witnessed a slowdown in segment growth. The decline in pharmacy
services revenues after several quarters of robust growth is a
cause of concern.
Currently, CVS carries a Zacks Rank #2 (Buy). Other Zacks Rank
#2 healthcare stocks that warrant a look are
Rite Aid Corporation
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CVS CAREMARK CP (CVS): Free Stock Analysis
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