A CVS Pharmacy store is seen in the Manhattan borough of New York City, New York.
Shannon Stapleton | Reuters
CVS Health on Wednesday outpaced Wall Street’s expectations for first-quarter earnings and raised its guidance for the year, as it saw demand for prescriptions and more, while demand for Covid vaccines and testing declined.
The health-care company said it now expects adjusted earnings per share for 2022 to range from $8.20 to $8.40 compared with its previous forecast of between $8.10 to $8.30.
Shares were up more than 1% in early trading.
Here’s what the company reported for the three-month period ended March 31, compared with what analysts were expecting, based on a survey of analysts by Refinitiv:
- Earnings per share: $2.22 adjusted vs. $2.15 expected
- Revenue: $76.83 billion vs. $75.39 billion expected
The health-care company reported net income of $2.31 billion, or $1.74 per share, higher than the $2.22 billion, or $1.68 per share, a year earlier.
Excluding items, CVS earned $2.22 per share, more than the $2.15 per share expected by analysts surveyed by Refinitiv.
Revenue increased to $76.83 billion from $69.1 billion a year earlier. That topped/fell short of analysts’ expectations of $75.39 billion.
Same-store sales at CVS grew 10.7% in the first quarter compared to the year-ago period. In the pharmacy, same-store sales rose 10.1% and in the front store, same-store sales increased 13.2%.
CVS said it attracted new customers, filled more prescriptions and saw a more typical cough, cold and flu season in the first quarter. In the year-ago period, fewer shoppers sought medications for seasonal illnesses as they wore masks and spent more time at home. The company said it also saw sales increase from pharmacy brand inflation.
Sales increases were partially offset by the introduction of new generic drugs, reimbursement pressure in the pharmacy segment and a drop in Covid testing demand, the company said.
The company’s operating income took a hit, declining 2.4% in the quarter, due to a pending agreement between CVS and the state of Florida to settle opioid claims against the company for $484 million. That settlement will be paid over an 18-year period.
Looking beyond Covid tests and shots
Customers have turned to CVS drugstores during pandemic, seeking Covid tests and vaccines. Now, the company is looking for other ways to draw foot traffic, drum up business and stem competition from online retailers. It has added more health-care services to its stores and encouraged members of its health insurance business, Aetna, to go to its drugstores for medical care.
In the first quarter, CVS saw declining demand for pandemic-related services. It administered more than 6 million Covid tests and more than 8 million Covid vaccines in the three-month period. That compares to more than 8 million Covid tests and more than 20 million Covid vaccines in the fourth quarter.
Instead of getting Covid tests at drugstores, more consumers are buying over-the-counter test kits. CVS pointed to those as a sales driver in the quarter — but did not specify how many it sold.
CVS expects about 18 million Covid vaccines in 2022, including fourth booster shots, which represents a 70% decline compared with the prior year, Chief Financial Officer Shawn Guertin said on an earnings call. Testing, excluding at-home kits, are expected to drop by about 50% year over year, he said.
Sales of over-the-counter tests will likely be the same or higher, but that will still equate to a 60% to 65% decline in Covid-related contributions, he said.
Guertin said Covid is still going to be a factor this year and next. “Many like to model Covid going to zero for retail, and that’s a convenient modeling assumption, but I think a very highly unlikely outcome for 2023 as we move from pandemic to endemic,” he said.
CEO Karen Lynch said on an earnings call that the pandemic has inspired more customers to turn to its stores and website for health care. For instance, she said, the company supported 10,000 virtual mental health visits in 2019. That soared to 10 million virtual visits for mental health in 2021.
The company announced last year that it will close about 900 stores over the next three years.
So far, Lynch said CVS has closed about 100 of the 300 it plans to shutter this year. She said has retained about 70% of the prescription volume and more than 95% of the employees from those stores.
Guertin said it is still looking at primary care companies it could buy to build out its offerings. The company announced it would explore such partnerships or acquisitions at an investor day in December.
Lynch said CVS is improving the customer experience with more tech tools. It will have free, same-day pickup of online purchases at about 6,000 stores later this year. It uses Microsoft text analytics to automate paper or fax-based prescriptions. Machine learning software helps monitor patients and flag if they are at risk of not taking their medication — so a pharmacist or a health-care provider can intervene.
As of Tuesday’s close, shares of CVS are down about 7% so far this year, outperforming the 12% decline of the S&P 500. Shares closed Tuesday at $95.98, bringing the company’s market value to $126.04 billion.
Read the company’s press release here.
This story is developing. Please check back for updates.