For three consecutive quarters, CVS Health Corp. (NYSE:CVS) eked out earnings numbers that surpassed Wall Street expectations by a small margin. The large pharmacy retailer and pharmacy benefits manager announced financial results from first-quarter 2015 before the market opened on Friday. Did CVS make it four in a row?
By the numbers
CVS Health reported first-quarter revenue of $36.3 billion. That figure reflected an 11% increase over the $32.7 billion in revenue from the same quarter in 2014. It also topped the average analysts' revenue estimate of $35.9 billion.
First-quarter generally accepted accounting principles earnings were up 8.1% year over year to $1.2 billion, or $1.07 per diluted share. CVS Health reported adjusted earnings per diluted share of $1.14 -- a jump of 12.2% over the first quarter of last year.
This time around, the company beat expectations rather handily. The consensus first-quarter estimate called for adjusted earnings of $1.08 per share. CVS itself had projected the high end of the earnings range at $1.09 per share. Investors reacted positively to the better than expected results, with shares climbing more than 1%.
CVS Health generated quarterly free cash flow of roughly $1.6 billion. Cash flow from operations looked even better at close to $2 billion.
Behind the numbers
Pharmacy benefits management drove CVS Health's first-quarter success. Revenue for this segment was up 18.2% year over year and accounted for nearly two-thirds of the company's total revenue. Specialty pharmacy and higher pharmacy network claims from new business, Managed Medicaid, and the Obamacare public health insurance exchanges spurred much of this growth.
CVS Health's retail pharmacy business also performed well. Revenue rose 2.9% year over year to $17 billion. That increase would have been even larger if tobacco sales were excluded from the figures from the first quarter of 2014. CVS Health pulled all tobacco products from its shelves last September.
Still, there were a few headwinds. Softer customer traffic took a toll on front-of-store sales, as did the recent introduction of several generic drugs. CVS Health's launch of Specialty Connect, a program designed to offer more flexibility and choice to patients with specialty drug prescriptions, also made a dent in retail pharmacy year-over-year comparisons.
CVS Health bumped the low end of its guidance for full-year earnings up by $0.03 as a result of the solid first-quarter performance. The company now expects 2015 earnings between $5.08 and $5.19 per share. For the second quarter, CVS Health projected adjusted earnings per share in the range of $1.17 to $1.20. Wall Street expects $1.25 per share.
Look for the company's PBM business to continue its winning ways and serve as the primary growth engine for CVS Health. The retail pharmacy business, though, is doing well in the post-tobacco environment and could continue to improve.
One risk for CVS Health's stock is a potential decision by the U.S. Supreme Court this summer that could effectively cause a meltdown for Obamacare in states that don't operate their own healthcare exchanges. However, CVS Health should be well positioned to recover over the long run even in the face of an adverse decision.