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3 Things You Can Expect With CVS Health's Q2 Earnings Update

By Keith Speights - Aug 3, 2019 at 9:00AM

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Look for plenty of good news when the healthcare giant reports its Q2 results on Wednesday.

CVS Health (CVS 0.67%) surprised some investors in the first quarter with its solid revenue and earnings growth. At the time, CEO Larry Merlo expressed optimism that his company was starting the year off with positive momentum.

But can the healthcare giant keep that momentum going? We'll soon find out. CVS Health announces its second-quarter results on Aug. 7. Here are three things you can expect with the company's Q2 earnings update. 

Female customer with a male pharmacist standing in the aisle of a CVS pharmacy

Image source: CVS Health.

1. Plenty of help from Aetna

Obviously, CVS Health's Q2 numbers will reflect tremendous improvement compared to the prior-year period as a result of its acquisition in late 2018 of Aetna. But this acquisition could be more helpful than you might think when CVS Health reports its second-quarter results.

For one thing, Aetna enjoyed strong growth with its Medicare business in the first quarter that was even better than CVS Health expected. This should translate to great financial results in Q2 as well since most Medicare members will still be enrolled in Aetna's plans in the quarter.

Also, Larry Merlo noted in CVS Health's Q1 conference call that the company is "tracking to the higher end of the $300 million to $350 million synergy goal for 2019" related to the Aetna acquisition. This could mean that overall expenses in Q2 will be lower on an apples-to-apples basis in Q2 compared to the prior-year period. 

2. An Easter bump for retail

CVS Health CFO Eva Boratto said in the Q1 conference call that the Easter holiday falling later in April presented a headwind of around 80 basis points. In 2018, Easter was on April 1 while in 2019 the holiday was on April 21.

The lead-up to this holiday typically boosts CVS Health's front-store retail sales. This shift in when Easter fell on the calendar caused Q1 revenue to be lower than it would have otherwise been. However, it should mean that CVS Health's retail business will enjoy an Easter bump in the second quarter.  

3. Tailwinds keep blowing

Added sales from the Easter holiday won't be enough to get investors excited. But the tailwinds that CVS Health experienced in the first quarter should keep on blowing in Q2. And that just might provide a legitimate reason for some excitement.

In CVS Health's Q1 call, executive vice president Kevin Hourican attributed the company's stronger-than-expected Q1 retail sales in large part to three factors. First, he said that the company's network relationships are contributing to its growth. Second, Hourican stated that CVS Health's clinical adherence programs are driving organic growth. Third, he pointed to the company's new services including its Saving Patients Money program, multi-dose packaging, and home delivery.

All three of these growth drivers identified by Hourican were in place in the second quarter as well as the first quarter. As he noted, these factors are "foundational and not episodic in nature." Some of them, particularly the adherence programs and new services, arguably should have an even greater impact in Q2.

Improving numbers

CVS Health projected that its Q2 earnings per share (EPS) based on generally accepted accounting principles (GAAP) would be between $1.20 and $1.24. The company's guidance given in April called for adjusted EPS between $1.68 and $1.72. The consensus analysts' estimate is for CVS Health to report Q2 adjusted EPS of $1.69.

We won't know CVS Health's actual results for a few more days, but I wouldn't be surprised to see the company beat Wall Street's estimate. Even if it only meets the consensus estimate, CVS Health will deliver 4% quarter-over-quarter adjusted EPS growth. That would seem to confirm that CVS Health is headed in the right direction.

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