CVS Swings to Profit, Forecasts 2020 Results in Line With Estimates

CVS Health Corp. turned a profit that beat Wall Street expectations and projected results for 2020 that matched estimates, as it capped its first year of integrating health insurer Aetna Inc.’s operations.
The earnings continued a string of quarters that mark a recovery from a year ago, when CVS’s shares dropped sharply after it offered lackluster 2019 guidance. Shares of CVS rose slightly in trading Wednesday morning on the New York Stock Exchange.
The company also said that the head of its pharmacy-benefits unit, Derica Rice, will leave. His exit comes after the departure earlier this year of Kevin Hourican, the leader of the pharmacy operations, who left to take a CEO job elsewhere.
CVS said Alan Lotvin, currently an executive vice president, will take over the PBM. The company previously said that chief operating officer Jonathan Roberts would temporarily lead the pharmacy unit.
CVS said during a conference call with analysts and investors that it is seeing benefits from its nearly $70 billion takeover of Aetna, which closed in late 2018.
“We have set a clear and bold path for CVS Health to be the most consumer-centric health company, transforming the way care is delivered in the U.S.,” CVS Chief Executive Larry Merlo said. “With over a year of successful integration, we have laid a strong foundation for growth.”
Former Aetna Chief Executive Mark Bertolini, who recently resigned from CVS’s board after publicly saying he was being pushed out, told The Wall Street Journal the integration of the two companies was far from complete.
For 2020, CVS expects per-share earnings from continuing operations of $5.47 to $5.60, or $7.04 to $7.17 on an adjusted basis. It sees operating income of $12.8 billion to $13 billion, or $15.5 billion to $15.8 billion on an adjusted basis.
Analysts polled by FactSet have projected 2020 earnings per share of $5.52, or $7.15 on an adjusted basis.
CVS reported fourth-quarter net income of $1.75 billion, or $1.33 a share, compared with a loss of $419 million, or 37 cents a share, in the comparable quarter a year before. Adjusted earnings were $1.73 a share.
Analysts were looking for earnings of $1.22 a share, or $1.68 a share on an adjusted basis.
CVS said its revenue rose 22.9% to $66.89 billion from the same period the year before as revenue from premiums shot up. Analysts were targeting $63.93 billion.
Revenue in its retail segment, which fulfills prescription medications and sells a range of merchandise, was $22.58 billion, up from $22.03 billion in the year-earlier period. Like competitor Walgreens Boots Alliance Inc., CVS faces pressure on margins in its retail-pharmacy business.
Mr. Merlo said the company’s health-hub stores, which offer a broader array of health services than its traditional pharmacies, are showing higher prescription volume and front-store sales in line with expectations. Yet he didn’t offer financial details on their performance. He said the company would share more information later this year.
CVS is in the process of rolling out around 1,500 of the new stores, which target people with chronic conditions such as diabetes with testing, monitoring and treatment plans.
The company’s health-care benefits business, which includes Aetna, posted revenue of $17.15 billion, up nearly threefold from the prior year. The segment’s medical-loss ratio, which represents the share of premiums paid out in claims, was 85.7% for the quarter.

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