Stocks rose Thursday after investor concerns about trade tariffs eased in the wake of statements from the Trump administration indicating that there would be flexibility in how they would be applied. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) closed with moderate gains.
Today's stock market
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The consumer staples sector led the market today, and the Consumer Staples Select Sector SPDR ETF (NYSEMKT:XLP) rose 0.9%.
Cigna moves to acquire Express Scripts in healthcare megadeal
Health insurer Cigna announced it is acquiring pharmacy benefit manager (PBM) Express Scripts in a $67 billion cash-and-stock deal, sending Express Scripts' shares up 8.6% and those of Cigna down 11.5%.
Cigna will pay Express Scripts shareholders $48.75 in cash and 0.2434 shares of the combined company, to be named Cigna, and will assume $15 billion in Express Scripts debt. After the transaction closes, Cigna shareholders will own approximately 64% of the combined company and Express Scripts shareholders will own 36%. The price represents an approximately 31% premium to Express Scripts' closing price of $73.42 on March 7, 2018.
"Cigna's acquisition of Express Scripts brings together two complementary customer-centric services companies, well-positioned to drive greater quality and affordability for customers," said Cigna CEO David M. Cordani in the press release. "This combination accelerates Cigna's enterprise mission of improving the health, well-being and sense of security of those we serve, and in turn, expanding the breadth of services for our customers, partners, clients, health plans and communities."
The deal is the latest development in healthcare industry consolidation. Last December, pharmacist CVS Health, which has its own PBM business, announced it was buying insurer Aetna. More recently, Amazon, Berkshire Hathaway, and JPMorgan Chase launched a collaboration to attack rising healthcare costs. Cigna expects annual savings of more than $600 million from the combination.
Kroger profit guidance disappoints
Shares of grocer Kroger tumbled 12.4% after the company released fourth-quarter 2017 results that met expectations but gave profit guidance for 2018 that was significantly below the analyst consensus. Total sales grew 12.4% to $31 billion, beating estimates of $30.8 billion. Excluding gas and an extra week in the quarter, sales increased 2.7%. Adjusted earnings per share jumped 18.9% to $0.63, right on the analyst consensus estimate. Identical-supermarket sales excluding gas grew 1.5%, up from 1.1% in the third quarter.
Guidance for full-year 2018 EPS came in between $1.95 and $2.15, compared with $2.04 in 2017 and below Wall Street expectations of $2.16. Kroger also reported that gross margin -- excluding gas, the extra week, and the effect of an accounting change -- fell 31 basis points in the fourth quarter compared with the period last year. Analysts on the conference call seemed to connect these statements to conclude that Kroger's profitability is under threat going forward.
Whereas company officials confirmed that the full-year gross margin decline of 19 basis points will probably be typical in future years, the discrepancy in the guidance is likely due mostly to how the company will use savings from the new tax law. Kroger expects to save $400 million per year, or about $0.36 to $0.37 per share, and plans to invest one third in the business, one third in employee wages and benefits, and let only a third fall to the bottom line. Analysts were evidently expecting more benefit to EPS in the short term and not willing to consider the positive longer-term implications of the plan.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jim Crumly owns shares of AMZN and BRK-B. The Motley Fool owns shares of and recommends AMZN and BRK-B. The Motley Fool is short shares of Kroger. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.