|CVS Corporation Reports Third Quarter Results; Outlines Plan to Restore Long-Term, Double-Digit EPS Growth; Provides Preliminary Fourth Quarter and 2002 Outlook|
|WOONSOCKET, R.I., Oct 30, 2001 (BUSINESS WIRE) -- CVS Corporation (NYSE: CVS),
America's #1 pharmacy, today announced its financial results for the third
quarter of 2001.
The Company also announced a series of actions to restore long-term, double-digit earnings growth and provided a preliminary outlook for the fourth quarter of 2001 and fiscal 2002.
Third Quarter ResultsFor the third quarter ended September 29, 2001, the Company reported net earnings of $123.7 million, or $0.30 per diluted share, down 16.0% from $147.2 million, or $0.36 per diluted share, during the third quarter of 2000. Prior-year results exclude a $19.2 million nonrecurring gain for settlement proceeds received from a class action lawsuit. Including the gain, net earnings for the third quarter of 2000 were $158.7 million, or $0.39 per diluted share. On September 21, 2001, the Company announced that it expected to report diluted earnings per share for the third quarter of 2001 in the range of $0.30 to $0.32.
Total sales for the third quarter of 2001 increased 10.1% to $5.4 billion, up from $4.9 billion during the third quarter last year. Same store sales rose 7.6% for the quarter, with pharmacy same store sales increasing 11.8% and front-end same store sales up 0.3%. Pharmacy sales were 66.6% of total sales for the quarter, with third party prescription sales representing 90.6% of pharmacy sales. During the quarter, CVS opened 29 new stores and relocated 34 others.
Action PlanTom Ryan, Chairman, President and Chief Executive Officer of CVS Corporation, commented, "We are disappointed with our results for the third quarter and committed to taking the necessary actions to improve performance and restore healthy long-term growth. With that in mind, we have completed a thorough analysis of our business and are today announcing a series of actions to best position CVS for the future. These steps will better focus our Company on leveraging the substantial opportunities in the drug store industry, by strengthening our existing operating base and enhancing retail execution, while continuing our entry into new high-growth geographic markets."
The Company's plan includes a series of sales generation and expense reduction initiatives, including:
- Undertaking a store consolidation program, under which approximately 200 stores will be closed during the first quarter of 2002. - Closing one of CVS' ten distribution facilities and one of ProCare's two mail order facilities. - Continuing expense management, including staff reductions related to the closings and other streamlining initiatives. - Continuing CVS' expansion into new geographic markets that will provide platforms for long-term growth. - Implementing a series of initiatives focused on improving in-store service. - Integrating its ProCare specialty pharmacy business and its pharmacy benefit management unit (PBM), PharmaCare.In connection with certain of these actions, the Company expects to record a pre-tax restructuring and asset impairment charge of approximately $350 million, or $0.56 per diluted share, in the fourth quarter of 2001.
Mr. Ryan continued, "Our business is fundamentally sound and growing. These actions will address the isolated issues we have faced this year. CVS has a proven track record, and we are refocusing our attention on achieving the executional excellence that has been a hallmark of our past success. With this renewed emphasis on service and execution, we will address our near-term challenges, while strengthening our long-term prospects."
The Company also announced that David Rickard, currently Executive Vice President and Chief Financial Officer, will be named Chief Administrative Officer in addition to his current responsibilities. Mr. Rickard is assuming responsibility for Human Resources, Government and Community Relations, and Corporate Communications. "Dave has been a valuable member of our senior management team. This move recognizes his tremendous contributions to CVS, and I look forward to his continued leadership in his expanded role," said Mr. Ryan.
Preliminary Fourth Quarter and 2002 OutlookBased on current sales and gross margin trends, the Company now expects to report diluted earnings per share for the fourth quarter ending December 29, 2001 in the range of $0.23 to $0.28, excluding the restructuring and asset impairment charge noted above. Total sales are expected to increase approximately 8-9% and same store sales are expected to rise approximately 7-8%. Based on these revised fourth quarter expectations, full-year diluted earnings per share are now anticipated to be in the range of $1.55 to $1.60, excluding the restructuring and asset impairment charge.
The Company expects fiscal 2002 to be a transition year, as the benefits of the actions described above take hold. Diluted earnings per share for the 2002 fiscal year are now anticipated to grow in a range of 8-10%, including the benefit of approximately $0.10 per diluted share related to the charge as well as the impact of the change in accounting for goodwill. Longer term, the Company's plan is designed to generate sustainable earnings growth of 12-15%.
Nine-Month ResultsFor the year-to-date period, CVS' net earnings increased 3.5% to $543.5 million, or $1.32 per diluted share, from $525.0 million, or $1.29 per diluted share during the prior-year period. Including the prior-year gain noted above, net earnings for the nine-month period in 2000 were $536.5 million, or $1.32 per diluted share.
Year-to-date, total sales increased 11.6% to $16.3 billion, up from $14.6 billion during the prior-year period. Same store sales rose 9.0% for the year-to-date period, with pharmacy same stores sales advancing 14.1% and front-end same store sales up 0.4%. Pharmacy sales were 66.5% of total sales for the year-to-date period, with third party prescription sales representing 90.6% of pharmacy sales in the period.
The Company will be holding a conference call today for the investment community at 8:30 a.m. (EST) to discuss the quarterly results. The call will be simulcast on the Company's web site for all interested parties. To access the webcast, visit the Company's web site at http://www.CVS.com on the Investor Relations page to hear the call live, or to listen to a recording of the call, which will be available for a one-week period following the call.
As of September 29, 2001, CVS operated 4,135 retail and specialty pharmacy stores in 32 states and the District of Columbia. CVS is America's #1 pharmacy dispensing more retail prescriptions in more stores than any other retailer. With annual sales exceeding $20 billion, CVS has created innovative approaches to serve the healthcare needs of all of our customers through its more than 4,100 CVS/pharmacy stores; CVS ProCare, its specialty pharmacy business; CVS.Com, its online pharmacy; and PharmaCare, its pharmacy benefit management company. General information about CVS is available through the Investor Relations portion of the Company's website at http://www.CVS.com.
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 caption "Cautionary Statement Concerning Forward-Looking Statements" in its Annual Report on Form 10-K for the fiscal year ended December 30, 2000 and in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.
CVS CORPORATION Consolidated Statements of Operations (Unaudited) 13 Weeks Ended 39 Weeks Ended In millions, except Sept. 29, Sept. 30, Sept. 29, Sept. 30, per share amounts 2001 2000 2001 2000 Net sales $ 5,410.8 $ 4,916.4 $ 16,290.9 $ 14,598.7 Cost of goods sold, buying and warehousing costs 4,039.0 3,619.0 12,007.2 10,665.5 Gross margin 1,371.8 1,297.4 4,283.7 3,933.2 Selling, general and administrative expenses 1,070.9 937.7 3,100.6 2,759.5 Depreciation and amortization 80.7 75.0 239.5 220.2 Total operating expenses 1,151.6 1,012.7 3,340.1 2,979.7 Operating profit 220.2 284.7 943.6 953.5 Interest expense, net 16.1 20.1 46.9 59.2 Earnings before income tax provision 204.1 264.6 896.7 894.3 Income tax provision 80.4 105.9 353.2 357.8 Net earnings(1) 123.7 158.7 543.5 536.5 Preference dividends, net of income tax benefit 3.7 3.8 11.1 11.3 Net earnings available to common shareholders $ 120.0 $ 154.9 $ 532.4 $ 525.2 Basic earnings per common share: Net earnings(1) $ 0.31 $ 0.40 $ 1.36 $ 1.34 Weighted average basic common shares outstanding 391.5 391.0 392.6 390.8 Diluted earnings per common share: Net earnings(1) $ 0.30 $ 0.39 $ 1.32 $ 1.32 Weighted average diluted common shares outstanding 406.0 407.5 409.7 407.3 Dividends declared per common share $ 0.0575 $ 0.0575 $ 0.1725 $ 0.1725 (1) The 13 and 39 weeks ended September 30, 2000 include a $19.2 million ($11.5 million after-tax), or $0.03 per basic and diluted share, nonrecurring gain representing partial payment of the Company's share of the settlement proceeds from a class action lawsuit against certain manufacturers of brand name prescription drugs. CVS CORPORATION Consolidated Balance Sheets (Unaudited) In millions, except share September 29, December 30, and per share amounts 2001 2000 Assets: Cash and cash equivalents $ 406.6 $ 337.3 Accounts receivable, net 956.5 824.5 Inventories 4,068.1 3,557.6 Deferred income taxes 132.5 124.9 Other current assets 100.8 92.3 Total current assets 5,664.5 4,936.6 Property and equipment, net 1,952.5 1,742.1 Goodwill, net 850.7 818.5 Other assets 477.8 452.3 Total assets $ 8,945.5 $ 7,949.5 Liabilities: Accounts payable $ 1,550.7 $ 1,351.5 Accrued expenses 1,074.6 1,001.4 Short-term borrowings 603.4 589.6 Current portion of long-term debt 21.6 21.6 Total current liabilities 3,250.3 2,964.1 Long-term debt 836.2 536.8 Deferred income taxes 28.0 28.0 Other long-term liabilities 118.0 116.0 Shareholders' equity: Preference stock, series one ESOP convertible, par value $1.00: authorized 50,000,000 shares; issued and outstanding 4,917,000 shares at September 29, 2001 and 5,006,000 shares at December 30, 2000 262.8 267.5 Common stock, par value $0.01: authorized 1,000,000,000 shares; issued 408,404,000 shares at September 29, 2001 and 407,395,000 shares at December 30, 2000 4.1 4.1 Treasury stock, at cost: 17,629,000 shares at September 29, 2001 and 15,073,000 shares at December 30, 2000 (510.7) (404.9) Guaranteed ESOP obligation (240.6) (240.6) Capital surplus 1,537.0 1,493.8 Retained earnings 3,660.4 3,184.7 Total shareholders' equity 4,713.0 4,304.6 Total liabilities and shareholders' equity $ 8,945.5 $ 7,949.5 CVS CORPORATION Consolidated Statements of Cash Flows (Unaudited) 39 Weeks Ended September 29, September 30, In millions 2001 2000 Cash flows from operating activities: Net earnings $ 543.5 $ 536.5 Adjustments required to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 239.5 220.2 Deferred income taxes and other noncash items 11.5 11.6 Change in operating assets and liabilities, providing/(requiring) cash, net of effects from acquisitions: Accounts receivable, net (132.0) (56.0) Inventories (510.5) (318.5) Other current assets (7.8) (20.6) Other assets (2.7) (55.5) Accounts payable 199.2 (34.7) Accrued expenses 58.9 35.0 Other long-term liabilities 2.0 (15.8) Net cash provided by operating activities 401.6 302.2 Cash flows from investing activities: Additions to property and equipment (473.0) (496.6) Proceeds from sale-leaseback transactions 94.0 140.9 Acquisitions (net of cash acquired) and investments (123.2) (244.9) Proceeds from sale or disposal of assets 11.6 9.2 Net cash used in investing activities (490.6) (591.4) Cash flow from financing activities: Additions to (reductions in) long-term debt 296.2 (0.7) Proceeds from exercise of stock options 45.1 54.1 Additions to short-term borrowings 13.8 451.4 Dividends paid (67.8) (67.5) Purchase of treasury shares (129.0) (163.2) Net cash provided by financing activities 158.3 274.1 Net increase (decrease) in cash and cash equivalents 69.3 (15.1) Cash and cash equivalents at beginning of period 337.3 230.0 Cash and cash equivalents at end of period $ 406.6 $ 214.9
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