CVS Reports Strong First Quarter

May 6, 2020
Peter Wehrwein

Merlo says COVID-19 related business activity added 10 cents to the adjusted earnings per share.

While hospitals, physicians, and other parts of the nation’s healthcare sector are bracing for harsh consequences from COVID-19, the suspension of routine medical care, and a possible economic downturn, insurers and other healthcare companies have reported strong financial results for the first quarter of this year.

Of course most of the first quarter was over before the COVID-19 cases and deaths started to take off in the United States.

CVS officially joined the roster of healthcare companies reporting good first quarters with an earning  report that shows increases in total revenues (up 8.3%), adjusted operating income (up 28%), and adjusted earnings per share (up 18%) compared with the first quarter of 2019.

The company also said today that its projected adjusted earnings per share of between $7.04 and $7.17 for the year remained unchanged.

In earnings call this morning, CEO Larry Merlo said that COVID-19-related business activity added 10 cents to the adjusted earnings per share of $1.91 for the first quarter. Those COVID-19-related business activities included accelerated prescription dispensing, strong “front store revenues” (sales of goods in CVS’ retail stores that are not prescription drugs), and “a modest reduction in discretionary medical utilization,” Merlo said.

Merlo talked up the “higher engagement” of CVS’ “digital assets,” during the call, a trend he said that began in January and accelerated with the outbreak of COVID-19. Merlo cited as example a 600% increase in the utilization of telemedicine for virtual visits through CVS’ Minute Clinics compared with the first quarter of 2019;  a more than 1,000% increase in home delivery of retail prescriptions, and a double-digit percentage increase in app usage across the company’s retail, Caremark, and specialty pharmacy businesses. Merlo said digital refills were up by about 50% in the company’s specialty pharmacy business.

The “health care benefits,” or Aetna, part of the company’s business stood out as an exception to the positive trends. It showed operating income and adjusted operating income decreases of 5.2% and 4.5%, respectively, compared with the first quarter of 2019. The company gave three reasons for these slippages: a decline in the number of people in its commercially insured plans (from almost 3.6 million during the first quarter of 2019  to 3.4 million during the first three months of this year) coupled with a increase in people enrolled in its self-insured plans (an increase of roughly 47,000, from 14,159,000 during the first quarter of 2019 to 14,206,000  during the first quarter of this year); higher Medicaid benefit costs in certain states; and the “incremental operating expense to onboard additional Medicaid members.” CVS acquired Centene’s Medicaid and Medicare Advantage businesses in Illinois last year.

CVS says COVID-19 had a “modest impact” on the health care benefits part of its business during the first quarter of this year. Reduced costs from the deferral of discretionary care was offset, according to the earnings report, by lower net investment income, which fell $71 million, or 43%, from $164 million during the first quarter of 2019 to $93 million during the first quarter of 2020.

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