CVS Health beat a Wall Street estimate for third quarter income as its Retail/LTC division sales gained. The company’s board of directors has also appointed Karen Lynch, currently evp/CVS Health and president, Aetna, as the company’s next president and CEO as well as a member of the board.
Current president and CEO Larry Merlo will transition from the role he had filled for a decade but will remain on the board until the company’s next annual meeting of stockholders in May, and serve as a strategic advisor to assist with the transition until his retirement on May 31. Before joining Aetna in 2012, Lynch was president of Magellan Health Services and held various senior executive positions at Cigna.
In the third quarter ended September 30, company net income was $1.22 billion, or 93 cents per diluted share, versus $1.53 billion, or $1.17 per diluted share, in the period a year prior.
Adjusted for one-time events, company earnings were $2.18 billion, or $1.66 per share, versus $2.41 billion, or $1.84 per share, in the year-earlier period. CVS topped a MarketBeat-published analyst consensus estimate of $1.33 per adjusted share for the quarter.
Total revenues were $67.06 billion versus $64.81 billion while product revenues were $47.74 billion versus $47.15 billion in the year-before quarter. Operating income was $3.25 billion versus $2.93 billion and adjusted operating income was $3.62 billion versus $3.95 billion in the period a year previous.
According to the company, the decline in adjusted operating income primarily resulted from declines in the Health Care Benefits segment largely attributable to the impact of planned investments in response to the COVID-19 pandemic intended to benefit customers and members, as well as continued reimbursement pressure in the Retail/LTC segment. Partially offsetting the decreases were improved purchasing economics in the Pharmacy Services segment and the favorable impact of enterprise-wide cost savings initiatives in the quarter. The decline in net income primarily resulted from an increase in the loss on early debt extinguishment to $766 million in the quarter.
In the Retail/LTC division, including CVS stores and e-commerce, total revenues were $22.73 billion and product revenues were $22.42 billion while operating income was $1.28 billion and adjusted operating income was $1.41 billion. In the 2019 quarter, total revenues were $21.47 billion and product revenues were $21.27 billion while operating income was $1.1 billion and adjusted operating income was $1.52 billion.
Front store revenues including those for general merchandise increased 2.7% in the quarter year over year. The increase primarily arose from strength in consumer health sales and an increase in basket size, partially offset by decreased customer traffic in the segment’s retail pharmacies during the COVID-19 pandemic movement restrictions.
Merlo said, “Our strong third quarter results demonstrate continued execution of our long-term strategic plan that is transforming the way health care is delivered. As an integrated health services provider, we’re developing holistic and innovative solutions that meet the needs of our customers in the community, in the home or in the palm of their hand. Our comprehensive pandemic response shows the power of a diverse and agile enterprise. We’ve opened more than 4,000 COVID-19 test sites across the country since March and have administered over six million tests. We’re helping businesses and universities safely reopen, and we were recently selected to administer COVID-19 vaccinations in long-term care facilities. We’ll continue to play a vital role in our nation’s recovery thanks to the tireless efforts of our nearly 300,000 employees.”
Of the CEO transition, David Dorman, chair of the board of CVS Health Corporation, said, “This leadership transition comes at the right time for CVS Health. This month marks the two year anniversary as one company, with our foundation clearly established and significant positive momentum across the company. As Larry has been transparent with us about his overall plans, we were able to put a thorough, multi-year process in place to consider and evaluate internal and external candidates. That process led to the selection of Karen Lynch. Larry’s collaboration with Karen in the coming months will ensure an effective leadership transition. Karen is a seasoned health care expert who knows our business. She brings a relentless focus on the customer, a strong track record of driving growth and innovation, and proven transformational leadership, all of which position her well for success. Our board of directors believes that Karen is the right leader to guide CVS Health into its next era of growth as the company continues its transformation.”