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What's Behind CVS Health's Strong First-Quarter Earnings

By Keith Speights – May 1, 2019 at 3:00PM

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All of the healthcare company's business segments delivered growth in the first quarter. Most of the growth, though, came from its acquisition of Aetna.

CVS Health's (CVS 1.00%) last quarterly update in February wasn't pretty. The company's Omnicare long-term care (LTC) pharmacy business struggled so much that CVS wrote off $2.2 billion as a goodwill impairment, causing a net loss for the fourth quarter.

The giant healthcare company announced its 2019 first-quarter results before the market opened on Wednesday. This time around, CVS Health's news was much better. Here are the highlights from the company's first-quarter earnings update. 

Pharmacist in store aisle with an older female customer

Image source: CVS Health.

CVS Health results: The raw numbers


Q1 2019 

Q1 2018 

Year-Over-Year Growth


$61.6 billion $45.7 billion


Net income from continuing operations

$1.4 billion $998 million


Adjusted earnings per share (EPS)

$1.62 $1.48


Data source: CVS Health. 

What happened with CVS Health this quarter?

As you might expect, CVS Health's acquisition of Aetna drove much of the company's revenue growth. The transaction closed in November 2018, making the first quarter of 2019 CVS' first full quarter to include revenue from the large health insurer. Aetna is now a core part of CVS Health's healthcare benefits segment, which also includes the company's SilverScript Medicare Part D prescription drug program. First-quarter revenue for this segment totaled nearly $17.9 billion.

However, a little over $1 billion of CVS' year-over-year revenue growth came from the company's pharmacy services segment, which provides pharmacy benefits management (PBM) services to employers, health plans, and government entities. CVS Health reported first-quarter revenue for its pharmacy services segment of $33.6 billion, up 3.1% year over year. Growth for this business segment stemmed primarily from higher branded drug prices and increased pharmacy claims volume.

The company's retail/LTC segment also contributed to overall revenue growth to a lesser extent. Revenue for this segment increased by $683 million year over year to $21.1 billion. Retail/LTC sales growth was driven in large part by increased prescription volume and higher branded drug prices.

Additional revenue from the Aetna acquisition provided a big boost to CVS Health's GAAP net income in the first quarter. However, the company's year-over-year adjusted non-GAAP earnings-per-share growth wasn't as impressive. The main reasons behind this lower growth rate were a much larger income tax hit in the first quarter of 2019 versus the prior-year period, and a significant net interest expense related to financing the Aetna transaction recorded in the first quarter of 2018.

What management had to say

CEO Larry Merlo said:

We generated strong first-quarter results, providing positive momentum to start the year. Following the close of our Aetna acquisition in late November, our first full quarter of combined operations was a success in many ways. In the quarter, we continued to advance our integration efforts while beginning to launch new innovations such as our HealthHUB concept stores.

Merlo added: "With our differentiated collection of healthcare assets, we are uniquely positioned to lead the transformation of the U.S. healthcare system. We remain relentlessly focused on creating value for clients and customers while driving both near- and longer-term returns for our shareholders."

Looking forward

Thanks to its strong first-quarter performance, CVS Health increased its full-year 2019 guidance. The company narrowed the range for 2019 GAAP EPS to between $4.90 and $5.05 from a range of $4.88 to $5.08. Adjusted EPS for 2019 is expected to be between $6.75 and $6.90, up from a range of $6.68 to $6.88.

CVS Health also provided earnings guidance for the second quarter. The company anticipates second-quarter GAAP EPS between $1.20 and $1.24. Adjusted EPS for the quarter is expected to be between $1.68 and $1.72. 

Investors can look forward to continued impressive year-over-year growth from CVS Health for the next couple of quarters. However, as was the case in the first quarter, this growth will be driven primarily by the impact of the Aetna acquisition. The real test for CVS Health will be to deliver solid organic growth down the road after it fully integrates Aetna's operations.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.

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