Pharmacy Drives CVS Health Top Line as Retail Segment Struggles


Nov. 8 2017, Updated 5:10 p.m. ET

CVS outdoes Wall Street 3Q17 revenue expectations

As we’ve discussed, CVS Health (CVS) reported its 3Q17 results on November 6. The company’s top line improved 3.5% YoY (year-over-year) to $46.2 billion. It outperformed consensus expectations for ~$10 million.

Top-line growth was driven by robust results at the company’s Pharmacy Services or PBM (pharmacy benefit management) segment, which accounted for more than 71% of total sales.

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PBM segment performance

Sales at the pharmacy services segment improved 8.1% YoY to $32.9 billion. As with the first two quarters this year, an increase in pharmacy network claims volume, higher brand drug prices, and healthy growth in specialty pharmacy volume drove sales at the pharmacy services segment.

However, growth in the PBM business was 40 basis points below the lower end of the company guidance, mainly due to lower-than-expected volumes.

Retail/LTC segment continues to go downhill

The company’s retail/long-term care (LTC) business continued to struggle. It reported a 2.7% fall in sales to $19.6 billion—the third straight quarterly decline in sales for CVS’s retail business. As with the first two quarters, deteriorating same-store sales, higher generic dispensing rates, and reimbursement pressures were responsible for the decline.

Same-store sales fell 3.2% during the quarter, including a pharmacy sales comps fall of 3.4%. Pharmacy comps were negatively impacted by a 435 basis point negative impact from recent generic introductions and 420 basis point negative impact from network restrictions that CVS faced because of Walgreens Boots Alliance (WBA) winning contracts last year.

The generic dispensing rate rose by 100 and 140 basis points, respectively, in the Pharmacy Services and Retail/LTC Segment during the quarter.

Investors looking for exposure to CVS can consider the First Trust Consumer Staples AlphaDEX Fund (FXG), which invests 4.8% of its portfolio in the company.

Read the next two parts of this series to learn about the company’s 3Q17 margins.


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