TGT Target Corp

By Paul Ziobro and Lisa Beilfuss 

CVS Health Corp.'s first-quarter sales surged, helped by more prescription claims and specialty drug sales at its pharmacy-benefits business, and added revenue from recent acquisitions on its drugstore side.

Its pharmacy-service division, which includes the specialty pharmacy businesses and its pharmacy benefit manager, posted a 21% increase in sales. The retail division logged growth of 19%, primarily from the addition of roughly 1,600 Target Corp. pharmacies that CVS now runs as well as the acquisition of Omnicare Inc., which dispenses drugs to places like nursing homes. CVS completed both deals in the last year.

Shares of the company rose 2.4% to $103.84 in midday trading.

The Woonsocket, R.I.-based company is increasingly being driven by its large pharmacy benefits management division that manages the prescription drug coverage for health insurers. It is attracting more clients by helping reduce overall drug spending at a time when some manufacturers are pushing through significant price increases.

CVS retail operations are benefiting from the new pharmacy clients because some CVS plans offer patients lower prices when prescriptions are filled in its pharmacies.

CVS argues its model is unique to the U.S. health-care market, even as some rivals try to emulate it. Responding to a question on Tuesday's earnings call about potential competition from a partnership between the drugstore chain Walgreens Boots Alliance Inc. and UnitedHealthcare Inc.'s pharmacy benefit business, Chief Executive Larry Merlo said that this isn't the first time that others have tried to peddle a product similar to its own.

"We're still the only ones with a fully integrated product," Mr. Merlo said.

Existing CVS pharmacies performed well in the quarter. Overall same-store sales rose 4.2%, with the metric up 5.5% in the pharmacy business, driven by a 5.9% increase in prescription volumes.

CVS' front-of-store business posted much slower growth, with same-store sales up just 0.7% after a 6.1% decline in the first quarter of 2015. CVS is focusing on squeezing more profits out of its stores by increasing sales of private-label items and expanding its selection of beauty products.

With the front-end business now just 11% of overall CVS sales, Mr. Merlo said CVS doesn't need to chase after lower-margin sales like food or general merchandise and can instead wield that part of the business to persuade shoppers to get their prescriptions filled there.

"It really affords us the opportunity to think about the front store in a very differentiated way," he said.

Overall, CVS reported a profit of $1.15 billion, down from $1.22 billion, as expenses grew faster than sales. Revenue rose 19% to $43.22 billion. CVS forecast second-quarter earnings to come in below analysts' estimates, but reiterated its outlook for the year.

Write to Paul Ziobro at Paul.Ziobro@wsj.com and Lisa Beilfuss at lisa.beilfuss@wsj.com

(END) Dow Jones Newswires

May 03, 2016 12:20 ET (16:20 GMT)

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