CVS Health’s Insurance Profits Offset a Retail Slowdown
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The benefits of CVS Health’s merger with Aetna were on full display as the enterprise reported its June-quarter results on Wednesday. While its retail sales were slowed by Covid-19 lockdowns, its health-insurance profits widened as patients made fewer doctor visits. The company raised its earnings guidance for the year.
“These are certainly unprecedented times for all,” said Chief Financial Officer Eva Boratto on the Wednesday morning conference call. “Our ability to deliver results in this dynamic environment is evidence of the strength of our diversified model.”
In recent trading, CVS stock (ticker: CVS) was down 1.1%, at $64.28. The S&P 500 was up 0.7%.
Revenue in the company’s second quarter was up 3%, to $65.3 billion, while earnings rose 50% to $2.26 a share. Excluding noncash charges and restructuring expenses, adjusted earnings were $2.64 a share.
As people sheltered at home, CVS drugstores lost “front of the store” traffic in the quarter. Profits in the company’s retail segment fell by about a third. But at the same time, there were fewer claims for doctor visits, so dollar profits more than doubled at the company’s health-care benefits segment. Operating profit margins in the health-insurance segment widened from 8% to 19%. In all, this boosted second-quarter earnings at CVS by about 75 cents.
Covid-19 brought other gains and losses. The company’s commercial insurance membership declined as people lost jobs, but Medicaid membership grew 5% from the March quarter.
Since people emerged from their homes, insurance claims are rising, but so are new prescriptions and retail sales. The company increased its 2020 year guidance for adjusted earnings from a midpoint of $7.10 a share to $7.20. Most of the boost came from changes in CVS' expected tax rate, said CFO Boratto. That dreary reason may account for the stock’s Wednesday selloff.
CEO Larry Merlo told conference-call listeners that the drug chain hoped to play a big role in Covid testing and vaccination. He said the company has administered about 2 million tests, with turnaround times averaging three days up until July, when a demand surge slowed turnarounds nationwide. After clinical labs increased their capacity, the delays have improved, Merlo said.
As a nation, some 17 million people a month are getting Covid tests. The government is aiming to increase that monthly rate to about 27 million in the fall. Merlo says CVS will play a part.
CVS also aims to give up to 18 million flu vaccines this fall, Merlo said, and the company is talking to the federal government about giving Covid vaccinations, just as it did when the H1N1 flu was pandemic.
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