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| CVS Caremark Reports Record First Quarter Revenues and Earnings |
Company Raises Mid-Point of 2010 EPS Guidance Range
WOONSOCKET, R.I.,, May 4, 2010 /PRNewswire via COMTEX/ --CVS Caremark Corporation (NYSE: CVS), today announced revenues, operating profit, and net income for the three months ended March 31, 2010. Revenues: Net revenues for the three months ended March 31, 2010 increased $366 million to $23.8 billion, up from $23.4 billion during the three months ended March 31, 2009. Revenues in the Pharmacy Services segment increased 2.6% to $11.8 billion in the three months ended March 31, 2010. This increase was primarily associated with the conversion of a number of RxAmerica(R) pharmacy network contracts, which resulted in those contracts being accounted for using the gross method. Adjusting the growth rate for the impact of new generics, net revenues would have grown 7.7% in the Pharmacy Services segment. Retail network claims processed during the three months ended March 31, 2010 decreased 10.3% to 132.0 million, compared to 147.1 million in the prior year period. The decrease in retail network claims was primarily due to the termination of a few large client contracts effective January 1, 2010 and the decrease of covered lives under our Medicare Part D program resulting from the 2010 Medicare Part D competitive bidding process. Mail choice claims processed during the three months ended March 31, 2010 decreased 4.8% to 15.5 million compared to 16.3 million in the prior year period. The decrease in the mail choice claim volume was related to the termination of a few large client contracts effective January 1, 2010, partially offset by new client starts effective January 1, 2010. Revenues in the Retail Pharmacy segment increased 3.6% to $14.0 billion in the three months ended March 31, 2010. Same store sales increased 2.3% over the prior year period. Same store sales in both the pharmacy and front store were negatively impacted by a weak flu season and severe weather in certain markets. Pharmacy same store sales rose 3.7% and were negatively impacted by approximately 290 basis points due to recent generic introductions and positively impacted by approximately 260 basis points due to the continued growth of the Maintenance Choice(TM) program. Front store same store sales decreased 0.7% in the three months ended March 31, 2010. As expected, front store same store sales were negatively impacted by the inclusion of stores acquired as part of the Longs acquisition and benefited from an earlier Easter this year compared with last year. The generic dispensing rate in our Pharmacy Services segment increased approximately 270 basis points to an industry-leading 70.4% and by approximately 290 basis points to 72.1% in our Retail Pharmacy segment for the three months ended March 31, 2010, compared to the prior year period. Income from continuing operations attributable to CVS Caremark: Income from continuing operations attributable to CVS Caremark for the three months ended March 31, 2010, increased $30 million to $773 million, compared with $743 million during the three months ended March 31, 2009. Adjusted earnings per share from continuing operations attributable to CVS Caremark, which excludes $105 million of intangible asset amortization related to acquisition activity, for the three months ended March 31, 2010 were $0.60, compared with $0.55 in the three months ended March 31, 2009. GAAP earnings per diluted share from continuing operations attributable to CVS Caremark for the three months ended March 31, 2010 were $0.55, compared with $0.51 in the three months ended March 31, 2009. The Company's reported results for the three months ended March 31, 2010 benefited from lower litigation-related costs and fewer integration-related costs associated with the Longs acquisition. Tom Ryan, Chairman, President and Chief Executive Officer said, "I'm very pleased with our results in the first quarter. Our operating profit across the enterprise was in line with our expectations, despite the weaker-than-anticipated flu season and severe weather in certain markets that dampened retail revenue growth. That solid performance was driven by continued market share gains and better expense leverage. At the same time, we continued to make excellent progress on our new clinical initiatives that should further differentiate CVS Caremark in the PBM marketplace. I'm also pleased to report that we generated approximately $660 million in free cash during the quarter, and remain committed to using our strong cash generation capabilities to return value to our shareholders. We accelerated our share repurchases during the quarter, which contributed to our achieving earnings per share that were slightly ahead of our expectations." Guidance: In light of the solid performance reported today and continued confidence about the remainder of the year, the Company also raised the mid-point of its earnings per share guidance range for the full year 2010. The Company increased the low-end of EPS guidance by $0.03 and now expects adjusted EPS from continuing operations to be in the range of $2.77 - $2.84 and GAAP EPS from continuing operations to be in the range of $2.58 - $2.65. Real estate program: During the three months ended March 31, 2010, the Company opened 48 new retail drugstores, and closed ten retail drugstores and two specialty pharmacy stores. In addition, the Company relocated 53 retail drugstores. As of March 31, 2010, the Company operated 7,063 retail drugstores, 47 specialty pharmacy stores, 18 specialty mail order pharmacies and six mail order pharmacies in 44 states, the District of Columbia and Puerto Rico. Teleconference and webcast: The Company will be holding a conference call today for the investment community at 8:30 am (EDT) to discuss its quarterly results. An audio webcast of the conference call will be broadcast simultaneously for all interested parties through the Investor Relations section of the CVS Caremark website at http://info.cvscaremark.com. This webcast will be archived and available on the website for a one-month period following the conference call. About the Company: CVS Caremark is the largest pharmacy health care provider in the United States. Through our integrated offerings across the entire spectrum of pharmacy care, we are uniquely positioned to provide greater access to engage plan members in behaviors that improve their health, and to lower overall health care costs for health plans, plan sponsors and their members. CVS Caremark is a market leader in mail order pharmacy, retail pharmacy, specialty pharmacy, and retail clinics, and is a leading provider of Medicare Part D Prescription Drug Plans. As one of the country's largest pharmacy benefits managers (PBMs), we provide access to a network of more than 64,000 pharmacies, including over 7,000 CVS/pharmacy(R) stores that provide unparalleled service and capabilities. Our clinical expertise includes one of the industry's most comprehensive disease management programs. General information about CVS Caremark is available through the Company's website at http://info.cvscaremark.com. Forward-looking statements: This press release contains certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The Company strongly recommends that you become familiar with the specific risks and uncertainties outlined under the Risk Factors section in our Annual Report on Form 10-K for the year ended December 31, 2009. Tables Follow - CVS CAREMARK CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
---------
In millions, except per share amounts 2010 2009
------------------------------------- ---- ----
Net revenues $23,760 $23,394
Cost of revenues 19,014 18,646
------ ------
Gross profit 4,746 4,748
Operating expenses 3,336 3,371
----- -----
Operating profit 1,410 1,377
Interest expense, net 128 142
--- ---
Income before income tax provision 1,282 1,235
Income tax provision 510 492
--- ---
Income from continuing operations 772 743
Loss from discontinued operations, net of
tax (2) (5)
--- ---
Net income 770 738
Net loss attributable to noncontrolling
interest (1) 1 -
--- ---
Net income attributable to CVS Caremark $771 $738
Income from continuing operations
attributable to CVS Caremark:
Income from continuing operations $772 $743
Net loss attributable to noncontrolling
interest 1 -
--- ---
Income from continuing operations
attributable to CVS Caremark $773 $743
==== ====
Basic earnings per common share: $0.56 $0.51
Income from continuing operations
attributable to CVS Caremark
Loss from discontinued operations - -
--- ---
Net income attributable to CVS Caremark $0.56 $0.51
===== =====
Weighted average basic common shares
outstanding 1,386 1,450
===== =====
Diluted earnings per common share: $0.55 $0.51
Income from continuing operations
attributable to CVS Caremark
Loss from discontinued operations - (0.01)
--- -----
Net income attributable to CVS Caremark $0.55 $0.50
===== =====
Weighted average diluted common shares
outstanding 1,396 1,469
===== =====
Dividends declared per common share $0.08750 $0.07625
(1) Represents the minority shareholders' portion of the net loss
from our majority owned subsidiary Generation Health, Inc.
CVS CAREMARK CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
March December
31, 31,
In millions, except per share amounts ------ ---------
------------------------------------- 2010 2009
---- ----
Assets:
Cash and cash equivalents $1,047 $1,086
Short-term investments 4 5
Accounts receivable, net 5,149 5,457
Inventories 10,275 10,343
Deferred income taxes 501 506
Other current assets 179 140
--- ---
Total current assets 17,155 17,537
Property and equipment, net 8,044 7,923
Goodwill 25,674 25,680
Intangible assets, net 10,037 10,127
Other assets 374 374
--- ---
Total assets $61,284 $61,641
======= =======
Liabilities:
Accounts payable $4,043 $3,560
Claims and discounts payable 2,477 3,075
Accrued expenses 2,898 3,246
Short-term debt 515 315
Current portion of long-term debt 2,404 2,104
----- -----
Total current liabilities 12,337 12,300
Long-term debt 8,454 8,756
Deferred income taxes 3,655 3,678
Other long-term liabilities 1,108 1,102
Commitments and contingencies
Redeemable noncontrolling interest 36 37
Shareholders' equity:
Preferred stock, par value $0.01: 0.1 shares
authorized; none issued or outstanding - -
Common stock, par value $0.01: 3,200 shares
authorized; 1,616 shares issued and 1,371 shares
outstanding at March 31, 2010 and 1,612 shares
issued and 1,391 shares outstanding at December 31,
2009 16 16
Treasury stock, at cost: 243 shares at March 31, 2010
and 219 shares at December 31, 2009 (8,454) (7,610)
Shares held in trust: 2 shares at March 31, 2010 and
December 31, 2009 (56) (56)
Capital surplus 27,314 27,198
Retained earnings 17,004 16,355
Accumulated other comprehensive loss (130) (135)
---- ----
Total shareholders' equity 35,694 35,768
------ ------
Total liabilities and shareholders' equity $61,284 $61,641
======= =======
CVS CAREMARK CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
---------
In millions 2010 2009
----------- ---- ----
Cash flows from operating activities:
Cash receipts from revenues $22,918 $22,184
Cash paid for inventory and prescriptions
dispensed by retail network pharmacies (17,581) (17,144)
Cash paid to other suppliers and employees (3,916) (3,859)
Interest received 1 2
Interest paid (155) (123)
Income taxes paid (207) (289)
---- ----
Net cash provided by operating activities 1,060 771
----- ---
Cash flows from investing activities:
Additions to property and equipment (401) (466)
Proceeds from sale-leaseback transactions - 6
Proceeds from sale or disposal of assets 12 2
Acquisitions (net of cash acquired) and
investments (9) 13
Maturity of short-term investments 1 -
--- ---
Net cash used in investing activities (397) (445)
---- ----
Cash flows from financing activities:
Increase (decrease) in short-term debt 200 (1,626)
Issuance of long-term debt - 999
Decrease in long-term debt (1) -
Dividends paid (122) (110)
Proceeds from exercise of stock options 97 55
Excess tax benefits from stock-based
compensation 11 1
Repurchase of common stock (887) -
---- ---
Net cash used in financing activities (702) (681)
---- ----
Net decrease in cash and cash equivalents (39) (355)
Cash and cash equivalents at beginning of
period 1,086 1,352
----- -----
Cash and cash equivalents at end of period $1,047 $997
====== ====
Reconciliation of net income to net cash provided
by operating activities:
Net income $770 $738
Adjustments required to reconcile net income to
net cash
provided by operating activities:
Depreciation and amortization 358 354
Stock-based compensation 37 22
Deferred income taxes and other non-cash items 2 34
Change in operating assets and liabilities, net
of effects of acquisitions:
Accounts receivable, net 308 26
Inventories 68 93
Other current assets (39) (65)
Other assets - (24)
Accounts payable and claims and discounts payable (115) (115)
Accrued expenses (335) (270)
Other long-term liabilities 6 (22)
--- ---
Net cash provided by operating activities $1,060 $771
====== ====
Adjusted Earnings Per Share
(Unaudited)
For internal comparisons, management finds it useful to assess year-
to-year performance by adjusting diluted earnings per share for
amortization, which primarily relates to acquisition activities.
The Company defines adjusted earnings per share as income before
income tax provision plus amortization, less adjusted income tax
provision, plus net loss attributable to noncontrolling interest
divided by the weighted average diluted common shares outstanding.
The following is a reconciliation of income before income tax
provision to adjusted earnings per share:
Three Months Ended
March 31,
---------
In millions, except per share amounts 2010 2009
------------------------------------- ---- ----
Income before income tax provision $1,282 $1,235
Amortization 105 108
--- ---
Adjusted income before income tax provision 1,387 1,343
Adjusted income tax provision(1) 552 535
--- ---
Adjusted income from continuing operations 835 808
Net loss attributable to noncontrolling interest 1 -
--- ---
Adjusted income from continuing operations
attributable to CVS Caremark $836 $808
==== ====
Weighted average diluted common shares
outstanding 1,396 1,469
Adjusted earnings per share from continuing
operations attributable to CVS Caremark $0.60 $0.55
(1) The adjusted income tax provision is computed using the same
effective income tax rate from the condensed consolidated statement
of income.
Adjusted Earnings Per Share Guidance
(Unaudited)
The following reconciliation of estimated income before income tax
provision to estimated adjusted earnings per share contains forward-
looking information that is subject to risks and uncertainties that
could cause actual results to differ materially. The Company claims
the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.
The Company strongly recommends that you become familiar with the
specific risks and uncertainties outlined under the Risk Factors
section in our Annual Report on Form 10-K for the year ended
December 31, 2009. For internal comparisons, management finds it
useful to assess year-to-year performance by adjusting diluted
earnings per share for amortization, which primarily relates to
acquisition activities.
Fiscal Year Ending
In millions, except per share amounts December 31, 2010
------------------------------------- -----------------
Income before income tax provision $5,930 $6,101
Amortization 425 435
--- ---
Adjusted income before income tax provision 6,355 6,536
Adjusted income tax provision 2,535 2,608
----- -----
Adjusted income from continuing operations 3,820 3,928
Net loss attributable to noncontrolling interest 4 4
--- ---
Adjusted income from continuing operations
attributable to CVS Caremark $3,824 $3,932
====== ======
Weighted average diluted common shares
outstanding 1,383 1,383
Adjusted earnings per share from continuing
operations attributable to CVS Caremark $2.77 $2.84
===== =====
Free Cash Flow
(Unaudited)
The Company defines free cash flow as net cash provided by operating
activities less net additions to properties and equipment (i.e.,
additions to property and equipment plus proceeds from sale-
leaseback transactions).
The following is a reconciliation of net cash provided by operating
activities to free cash flow:
Three Months Ended
March 31,
---------
In millions 2010 2009
----------- ---- ----
Net cash provided by operating activities $1,060 $771
Subtract: Additions to property and
equipment (401) (466)
Add: Proceeds from sale-leaseback
transactions - 6
--- ---
Free cash flow $659 $311
==== ====
Supplemental Information
(Unaudited)
The Company evaluates its Pharmacy Services and Retail Pharmacy
segment performance based on net revenue, gross profit and operating
profit before the effect of nonrecurring charges and gains and
certain intersegment activities. The Company evaluates the
performance of its Corporate segment based on operating expenses
before the effect of nonrecurring charges and gains and certain
intersegment activities. The following is a reconciliation of the
Company's segments to the accompanying consolidated financial
statements:
Retail
Pharmacy Pharmacy Corporate
In millions Services Segment Segment
----------- -------- -------- ---------
Segment(1)
----------
Three Months
Ended
March 31, 2010: $11,836 $13,978 $-
Net revenues
Gross profit 782 3,987 -
Operating
profit (loss) 538 1,030 (135)
March 31,
2009(3): $11,535 $13,497 $-
Net revenues
Gross profit 798 3,956 -
Operating
profit (loss) 537 972 (126)
Intersegment
In millions Eliminations(2) Consolidated
----------- --------------- ------------
Totals
------
Three Months
Ended
March 31, 2010: $(2,054) $23,760
Net revenues
Gross profit (23) 4,746
Operating
profit (loss) (23) 1,410
March 31,
2009(3): $(1,638) $23,394
Net revenues
Gross profit (6) 4,748
Operating
profit (loss) (6) 1,377
(1) Net revenues of the Pharmacy Services segment include
approximately $1.7 billion of retail co-payments for both the three
months ended March 31, 2010 and 2009.
(2) Intersegment eliminations relate to two types of transactions:
(i) Intersegment revenues that occur when Pharmacy Services segment
customers use Retail Pharmacy segment stores to purchase covered
products. When this occurs, both the Pharmacy Services and Retail
Pharmacy segments record the revenue on a standalone basis, and (ii)
Intersegment revenues, gross profit and operating profit that occur
when Pharmacy Services segment customers, through the Company's
intersegment activities (such as the Maintenance Choice(TM) program),
elect to pick-up their maintenance prescriptions at Retail Pharmacy
segment stores instead of receiving them through the mail. When this
occurs, both the Pharmacy Services and Retail Pharmacy segments
record the revenue, gross profit and operating profit on a
standalone basis. As a result, both the Pharmacy Services and the
Retail Pharmacy segments include the following results associated
with this activity: net revenues of $340 million and $98 million for
the three months ended March 31, 2010 and 2009, respectively; gross
profit of $23 million and $6 million for the three months ended
March 31, 2010 and 2009, respectively; and operating profit of $23
million and $6 million for the three months ended March 31, 2010 and
2009, respectively.
(3)The results for the three months ended March 31, 2009 have been
revised to conform to the 2010 presentation.
Supplemental Information
(Unaudited)
Pharmacy Services Segment
The following table summarizes the Pharmacy Services segment's
performance for the respective periods:
Three Months Ended
March 31,
---------
In millions 2010 2009(1)
----------- ---- ------
Net revenues $11,836 $11,535
Gross profit 782 798
Gross profit % of net
revenues 6.6% 6.9%
Operating expenses 244 261
Operating expense % of
net revenues 2.1% 2.3%
Operating profit 538 537
Operating profit % of
net revenues 4.5% 4.7%
Net revenues(2):
Mail choice(3) $4,078 $4,053
Pharmacy network(4) 7,670 7,400
Other 88 82
Pharmacy claims
processed(2):
Total 147.5 163.4
Mail choice(3) 15.5 16.3
Pharmacy network(4) 132.0 147.1
Generic dispensing
rate(2):
Total 70.4% 67.7%
Mail choice(3) 58.8% 55.5%
Pharmacy network(4) 71.6% 68.8%
Mail choice penetration
rate 24.8% 23.7%
(1) The results for the three months ended March 31, 2009 have been
revised to conform to the 2010 presentation of the Pharmacy Services
segment.
(2) Pharmacy network net revenues, claims processed and generic
dispensing rates do not include Maintenance Choice, which are
included within the mail choice category.
(3) Mail choice is defined as claims filled at a Pharmacy Services'
mail facility, which includes specialty mail claims, as well as
90-day claims filled at retail under the Maintenance Choice program.
(4)Pharmacy network is defined as claims filled at retail pharmacies,
including our retail drugstores.
EBITDA and EBITDA per Adjusted Claim
(Unaudited)
The Company defines EBITDA as earnings before interest, taxes,
depreciation and amortization. We define EBITDA per adjusted claim
as EBITDA divided by adjusted pharmacy claims. Adjusted pharmacy
claims normalize the claims volume statistic for the difference in
average days' supply for mail and retail claims. Adjusted pharmacy
claims are calculated by multiplying 90-day claims (the majority of
total mail claims) by 3 and adding the 30-day claims. EBITDA can be
reconciled to operating profit, which we believe to be the most
directly comparable GAAP financial measure.
The following is a reconciliation of operating profit to EBITDA for
the Pharmacy Services segment:
Three Months
Ended
March 31,
---------
In millions, except per
adjusted claim amounts 2010 2009(1)
----------------------- ---- ------
Operating profit $538 $537
Depreciation and
amortization 98 92
--- ---
EBITDA $636 $629
Adjusted claims 175.5 192.7
----- -----
EBITDA per adjusted claim $3.62 $3.26
===== =====
(1)The three months ended March 31, 2009 have been revised to conform
to the 2010 presentation of the Pharmacy Services segment's
operating profit and depreciation and amortization.
Supplemental Information
(Unaudited)
Retail Pharmacy Segment
The following table summarizes the Retail Pharmacy segment's
performance for the respective periods:
Three Months Ended
March 31,
---------
In millions 2010 2009(1)
----------- ---- ------
Net revenues $13,978 $13,497
Gross profit 3,987 3,956
Gross profit % of net
revenues 28.5% 29.3%
Operating expenses 2,957 2,984
Operating expense % of
net revenues 21.2% 22.1%
Operating profit 1,030 972
Operating profit % of net
revenues 7.4% 7.2%
Net revenue increase(2):
Total 3.6% 13.9%
Pharmacy 4.6% 13.2%
Front store 1.3% 15.6%
Same store sales increase
(decrease)(3):
Total 2.3% 3.3%
Pharmacy 3.7% 4.6%
Front store (0.7)% 0.7%
Generic dispensing rate 72.1% 69.2%
Pharmacy % of total
revenues 68.4% 67.7%
Third party % of pharmacy
revenue 97.0% 96.6%
Retail prescriptions
filled 157.3 152.4
(1) The results for the three months ended March 31, 2009 have been
revised to conform to the 2010 presentation of the Retail Pharmacy
segment.
(2)The net revenue increase for the three months ended March 31, 2009
include the results associated with stores acquired as part of the
Longs acquisition in October 2008.
(3) Beginning in November 2009, same store sales increase includes
stores acquired as part of the Longs acquisition.
SOURCE CVS Caremark Corporation |
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