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Earnings Analysis: CVS Health’s Performance in 2Q15

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Aug. 10 2015, Published 10:11 a.m. ET

CVS Health releases 2Q15 results

CVS Health (CVS) declared its 2Q15[1. Quarter ending June 30, 2015] results on August 4. The company’s results were upbeat, with sales rising 7.4% year-over-year to $37.2 billion. Adjusted earnings per share (or EPS) grew faster at 7.7% to $1.22[2. Excluding transaction and financing costs of $0.03 per share associated with acquisitions].

The company came ahead of consensus Wall Street analyst estimates for the fifth straight quarter, beating projections of $1.196. However, CVS fell marginally short of consensus sales estimates.

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Peer group performance

Pharmacy benefit manager Express Scripts (ESRX) also reported an earnings beat, with adjusted EPS of $1.44 in 2Q15, up 17.1% over 2Q14. Although the number of adjusted claims fell 1%, the company did raise its guidance for the full year.

In contrast, CVS’ rival Walgreens Boots Alliance (WBA), which declared 3Q15[3. Quarter ending May 31, 2015] results last month, came ahead on both earnings and revenue estimates. Adjusted EPS for WBA rose 22.9% to $1.02. WBA’s performance was primarily driven by higher Retail Pharmacy sales and improved front-end margins.

Mixed trend

Despite the earnings beat, CVS’ results were mixed. Results were affected by changes in product mix, a tilt in sales mix toward its lower-margin Pharmacy Benefit Management (or PBM) segment, and slower traffic to its high-margin front store business. Results were boosted, however, by higher specialty pharmacy sales and a 4.1% increase in pharmacy same-store sales.

In this series, we’ll analyze the company’s performance in the context of changes brought about by the company’s own initiatives and changing industry dynamics.

CVS is the fourth-largest holding in the Consumer Staples Select Sector SPDR ETF (XLP), with a 7.2% weight. CVS is also included in the portfolio holdings of the SPDR S&P 500 ETF (SPY), with a 0.7% weight.

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