CVS CVS Health Corporation

By Chelsey Dulaney and Paul Ziobro 

CVS Health Corp. reported higher profit and sales in its fourth quarter, as rising sales of prescription drugs offset a slight drop in sales in the front-end of its stores, where traffic continues to erode.

The quarter was broadly in line with Wall Street expectations, as CVS drugstores and its large pharmacy benefits management business continued to cover more patients and dispense more drugs. In Tuesday morning trading, CVS shares rose 2% to $91.51.

The results were also boosted by two recent acquisitions that allow CVS to cover more patients: Omnicare Inc., which dispenses drugs to places like nursing homes; and Target Corp.'s pharmacy business, which gives CVS nearly 1,700 more locations. As both those acquisitions become integrated, CVS plans to market them aggressively to help sign up more clients to its network.

Building scale is one part of CVS's answer to falling reimbursement rates as more patients are covered through federal Medicare and Medicaid programs, which carry lower margins than private insurers.

Still, private insurers are trying to squeeze more costs out of their drug plans as well. The health insurer Anthem Inc. last month said it would drop its longtime benefits manager Express Scripts Holding Co. unless it could deliver more than $3 billion in savings on drug prices.

The rare public dispute puts the valuable contract up for grabs. CVS executives declined Tuesday to comment on their plans to pursue it, but did say that Anthem's move hasn't affected negotiations with other clients. "We're not really seeing any repercussions or halo to pricing in the marketplace from that event, but I think it continues to be competitive," Jonathan Roberts, head of CVS's Caremark business, said on Tuesday's earnings call.

For the period ended Dec. 31, CVS reported a profit of $1.5 billion, or $1.34 a share, up from $1.32 billion, or $1.14 a share, a year earlier. Quarterly revenue rose 11% to $41.15 billion, after eliminating inter-segment sales. Analysts were forecasting revenue of $41.13 billion in revenue.

Sales in its retail business increased 12.5% to $19.9 billion, with about half of that growth owing to CVS's recent acquisition of Omnicare Inc.

Sales at stores, excluding newly opened or closed locations, rose 3.5%, though front-of-store sales edged down 0.5%. The decline in the front-end, where CVS sells over-the-counter medicine, snacks and beauty products, comes as CVS focuses more on deals targeted at specific customers using data from a loyalty program while downplaying broader discounts from its circulars.

The retail pharmacy sales remained strong. Both pharmacy sales and prescription volumes, on a same-store basis, rose 5%.

The Caremark and other pharmacy-services businesses posted a 11% increase in sales to $26.5 billion, driven by growth in selling specialty drugs and a 7.2% increase in processed claims.

While backing its guidance for this year, CVS projected first-quarter earnings of $1.14 to $1.17 a share, just below analyst expectations of $1.18 a share, according to Thomson Reuters.

Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com and Paul Ziobro at Paul.Ziobro@wsj.com

(END) Dow Jones Newswires

February 09, 2016 12:03 ET (17:03 GMT)

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