CVS Health Corporation · NYSE:CVS
CVS Health — CVS Caremark — Q4 2013 Earnings Presentation
40 slides from CVS Health's earnings presentation, Feb 11, 2014
Slide 1: Fourth Quarter 2013 Earnings Conference Call
Fourth Quarter 2013 Earnings Conference Call Larry Merlo President & Chief Executive Officer Dave Denton Executive Vice President & Chief Financial Officer February 11, 2014
Slide 2: Safe Harbor Statement
Safe Harbor Statement During this presentation, we will make certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. Accordingly, for these forward-looking statements, we claim the protection of the safe harbor for forward-
Slide 3: Results At High End Of Expectations
Results At High End Of Expectations Q4 Change vs. vs Full-year Change vs.vs 2013 Q4 2012 2013 Full-year 2012 (operating profit figures in millions) (1)(2)(3)(4) Adjusted EPS $1.12 (1.9%) $3.96 15.7% (5) PBM Operating O i Profit P fi $900 (13 0%) (13.0%) $3 0 $3,075 14 8% 14.8% ((1)(6) )( ) R t il Op
Slide 4: Exiting Tobacco Category
Business Update: Exiting g Tobacco Category g y Exiting tobacco category because we believe it is inconsistent with our g growingg role in the changing g g health care marketplace p The move more closely aligns us with the goals of patients, clients and providers - positioning our company for future
Slide 5: Impact Of Affordable Care Act
Business Update: Impact p Of Affordable Care Act Public Exchanges – Enrollment was slow and bumpy at the outset – Improvements in enrollment process and increased awareness among eligible consumers helping drive recent increases in enrollment – Latest government data showing 3.0 million exchange enr
Slide 6: Impact Of Affordable Care Act
Business Update: Impact p Of Affordable Care Act Although it remains to be seen how many people ultimately gain g this yyear,, the recent progress coverage p g g g is encouraging CVS Caremark is well positioned to serve these new customers across our enterprise assets Well positioned as an enterpris
Slide 7: Cardinal Health Joint Venture
Business Update: Cardinal Health Joint Venture Ten-year agreement forms largest generic sourcing entity in the U.S. Two of the most knowledgeable and experienced generic sourcing teams in the world – S Strong track record off working collaboratively to drive results Structure of JV is designed to be
Slide 8: Selling Season Updates & Medicare Part D
PBM Business: Selling g Season Updates p & Medicare Part D Selling Season – 2014 net-new net new wins of about $2 $2.4 4 billion; exclude attrition in Med D business • Completed 90% of renewals; 96% retention rate to-date – Too early y to give g substantive update p on 2015 selling g season • Well p
Slide 9: Aetna & Specialty Pharmacy
PBM Business: Aetna & Specialty p y Pharmacy y Aetna – Completed migration of Aetna’s Aetna s commercial business to the CVS Caremark platform – Working with Aetna’s sales teams to ensure their clients will have access to CVS Caremark’s differentiated offerings – Joint efforts with Aetna’s sales tea
Slide 10: Innovative Specialty Offerings Raising The Bar
PBM Business: Innovative Specialty p y Offerings g Raising g The Bar Capitalizing on our unique ability to optimize cost, quality, and p yp access in the specialty pharmacy y arena Coram – A market leader in specialty infusion services and enteral nutrition – Provides new set of capabilities to mana
Slide 11: Revenue And Script Growth
Retail Business: Revenue And Script p Growth Total same-store sales increased 4.0% Pharmacy same-store sales increased 6.8% – Volumes were muted due to slow start to the flu season vs. Q4 2012 – Flu-related scripts down nearly 10% vs. Q4 2012 – Negative impact of ~230 basis points from new generic d
Slide 12: Front Store Trends And Real Estate
Retail Business: Front Store Trends And Real Estate Front store comps decreased 1.9% reflecting a decline in traffic partially offset byy an increased basket size – Comping against very strong cough/cold season in December of 2012 – Cough and cold business was down about 5% vs. Q4 2012 – Two-year st
Slide 13: Continued Strong Growth At MinuteClinic
Retail Business: Continued Strong g Growth At MinuteClinic MinuteClinic revenues increased more than 10% in the quarter p tough despite g comparison p g flu season in 2012 with strong Opened 74 net-new clinics in the quarter, including clinics in new states and markets, such as New Hampshire and the
Slide 14: Financial Review
Fourth Quarter 2013 Earnings Conference Call Financial Review Dave Denton Executive Vice President & Chief Financial Officer February 11, 2014
Slide 15: Capital Allocation
Financial Update: Capital p Allocation Value-creating share repurchases – Q4: ~26.6m $1.7b 26 6m shares for $1 7b – 2013: ~66m shares for $4.0b ($60.01 per share average) – $693m remaining on 2012 share repurchase authorization in addition to the $6b our board authorized in December Paid total of $2
Slide 16: Balance Sheet & Cash Flows
Financial Update: Balance Sheet & Cash Flows Generated ~$1.3b of free cash in the fourth quarter; ~$4.4b total for 2013 – Down $771m vs. 2012 • Driven by increased accounts receivable due to the timing of payments from CMS in connection with Medicare Part D business, business partially offset by imp
Slide 17: Q4 2013 Consolidated Results
Fourth Quarter 2013: Consolidated Results (excl. 2012 loss on early debt extinguishment) Change vs. (1) (in millions, except per share amounts) Q4 2013 Q4 2012 Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,829.8 32 829 8 4 6% 4.6% Gross profit . . . . . . . . . . . . . . . . .
Slide 18: Q4 2013 Pharmacy Services Segment
Fourth Quarter 2013: Pharmacy y Services Segment g Change vs. (in millions) Q4 2013 Q4 2012 Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,615.0 19 615 0 5 2% 5.2% Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . 1,211.6 (9.2%) Gross margin . . . . . . . . . . .
Slide 19: Q4 2013 Pharmacy Services Segment
Fourth Quarter 2013: Pharmacy y Services Segment g Change vs. (in millions) Q4 2013 Q4 2012 Net revenues Mail choice . . . . . . . . . . . . . . . . . . . . . . . . $ 6,516.0 13.2% Pharmacy y network . . . . . . . . . . . . . . . . . . 13,047.9 1.6% Other. . . . . . . . . . . . . . . . . . . . . . .
Slide 20: Q4 2013 Retail Pharmacy Segment
Fourth Quarter 2013: Retail Pharmacy y Segment g Change vs. (1) (in millions) Q4 2013 Q4 2012 Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,191.8 17 191 8 5 6% 5.6% Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . 5,283.7 3.8% Gross margin . . . . . . . . . . .
Slide 21: Q4 2013 Retail Pharmacy Segment
Fourth Quarter 2013: Retail Pharmacy y Segment g Change vs. (1) (in millions) Q4 2013 Q4 2012 Net revenues Pharmacy . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,943.1 8.5% Front store . . . . . . . . . . . . . . . . . . . . . . . . 5,248.8 (0.5%) Retail prescriptions filled 90-day counted
Slide 22: Full-year 2013 Consolidated Results
Full-year 2013: Consolidated Results (excl. 2013 legal settlement benefit & 2012 loss on early debt extinguishment) Change vs. (1) (in millions, except per share amounts) 2013 2012 Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 126,761.0 126 761 0 3 0% 3.0% Gross profit . . . . . .
Slide 23: Full-year 2013 Pharmacy Services Segment
Full-year 2013: Pharmacy y Services Segment g (excl. 2013 legal settlement benefit) Change vs. (in millions) 2013 2012 Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 76,208.2 76 208 2 3 8% 3.8% Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . 4,236.9 11.3% Gross mar
Slide 24: Full-year 2013 Pharmacy Services Segment
Full-year 2013: Pharmacy y Services Segment g Change vs. (in millions) 2013 2012 Net revenues Mail choice . . . . . . . . . . . . . . . . . . . . . . . . $ 24,790.5 8.5% Pharmacy y network . . . . . . . . . . . . . . . . . . 51,211.1 1.6% Other. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Slide 25: Full-year 2013 Retail Pharmacy Segment
Full-year 2013: Retail Pharmacy y Segment g (excl. 2013 legal settlement benefit) Change vs. (1) (in millions) 2013 2012 Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,618.2 65 618 2 3 1% 3.1% Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . 20,111.9 5.3% Gross m
Slide 26: Full-year 2013 Retail Pharmacy Segment
Full-year 2013: Retail Pharmacy y Segment g Change vs. (1) (in millions) 2013 2012 Net revenues Pharmacy . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,582.9 4.1% Front store . . . . . . . . . . . . . . . . . . . . . . . . 20,035.3 1.0% Retail prescriptions filled 90-day counted as 1 . . . .
Slide 27: 2014 Guidance: First Quarter
2014 Guidance: First Quarter Arial 18 Q1 2014 Net Revenue Growth 4.25% to 5.5% (2)(8) Adjusted EPS $1.03 to $1.06 Y Year-over-year G Growth th 24 25% tto 28 24.25% 28.25% 25% ((8)) GAAP Diluted Dil t d EPS $0 97 to $0.97 t $1.00 $1 00 Refer to page 40 for end notes. 27
Slide 28: 2014 Guidance: First Quarter Segments
2014 Guidance: First Quarter Q1 2014 Net Revenue Growth 3% to 4.5% harmacy y Retail Same store sales 1.75% to 3.25% (7) j Same store adjusted scripts p 2.75% to 3.75% Ph Operating Profit Growth 14.5% to 16.5% Pharrmacy vices Net Revenue Growth 5.5% to 6.75% Serv Operating Profit Growth 21.25% to 28.
Slide 29: 2014 Guidance: Healthy Outlook In Retail
2014 Guidance: Healthy Outlook In Retail Full-year 2014 Net Revenue Growth 0.75% to 2% Same store sales (0.25%) to 1% (7) Same store adjusted scripts 3.25% to 4.25% Gross Profit Margin Moderate improvement Operating Expense (% of revenue) Flattish (6) Operating Profit Growth 7% to 8.75% Operating Pr
Slide 30: 2014 Guidance: Healthy Outlook In PBM
2014 Guidance: Healthy Outlook In PBM Full-year 2014 Net Revenue Growth 7.25% to 8.5% (10) Total Adjusted Claims 1.05 billion to 1.06 billion Gross Profit Margin Modestly up Operating Expense (% of revenue) Flattish (5) Operating Profit Growth 6 75% to 10.75% 6.75% 10 75% Operating Profit Margin Fla
Slide 31: 2014 Guidance: Solid Enterprise Growth
2014 Guidance: Solid Enterprise Growth Arial 18 Full-year 2014 Net Revenue Growth 4.25% to 5.5% (2)(8)(9) Adjusted EPS $4.36 to $4.50 Y Year-over-year G Growth th 10 25% tto 13 10.25% 13.75% 75% ((8)) GAAP Diluted Dil t d EPS $4 09 to $4.09 t $4.23 $4 23 Refer to page 40 for end notes. 31
Slide 32: 2014 Guidance: Consolidated Income Statement
2014 Guidance: Consolidated Income Statement Full-year 2014 Corporate segment expense $785 million to $800 million Intercompany eliminations ~ 10.6% (% of combined segment revenues) Gross profit margin Flattish Operating expense (4) Modest improvement (% of revenue) Operating profit margin Up 15 bps
Slide 33: 2014 Guidance: Consolidated Income Statement
2014 Guidance: Consolidated Income Statement Full-year 2014 (11) Net interest expense $630 million to $640 million Effective tax rate ~ 39% (12) Weighted average shares ~ 1.17 billion Consolidated amortization ~$515 $515 million Consolidated D & A ~$1.9 billion Refer to page 40 for end notes. 33
Slide 34: 2014 Guidance: Substantial Free Cash Flow
2014 Guidance: Substantial Free Cash Flow (billions) Full-year 2014 Operating Cash Flow $6.9 to $7.3 Gross Capital Expenditures ($2.1) to ($2) (13) Sale-leaseback Proceeds $0.6 to $0.5 N t Capital Net C it l EExpenditures dit A Approximately i t l ($1 ($1.5) 5) F Free Cash C h Flow Fl $5 5 to $5.5 t
Slide 35: Appendix
Fourth Quarter 2013 Earnings Conference Call Appendix February 11, 2014
Slide 36: Q4 2013 Consolidated Results (GAAP)
Fourth Quarter 2013: Consolidated Results (GAAP results, which includes 2012 loss on early debt extinguishment) Change vs. (1) (in millions, except per share amounts) Q4 2013 Q4 2012 Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,829.8 32 829 8 4 6% 4.6% Gross profit . . . . . .
Slide 37: Full-year 2013 Consolidated Results (GAAP)
Full-year 2013: Consolidated Results (GAAP results, which include 2013 legal settlement benefit & 2012 loss on early debt extinguishment) Change vs. (1) (in millions, except per share amounts) 2013 2012 Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 126,761.0 126 761 0 3 0% 3.0% Gr
Slide 38: Full-year 2013 Pharmacy Services Segment (GAAP)
Full-year 2013: Pharmacy y Services Segment g (GAAP results, which include 2013 legal settlement benefit & 2012 loss on early debt extinguishment) Change vs. (in millions) 2013 2012 Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 76,208.2 76 208 2 3 8% 3.8% Gross profit . . . . . .
Slide 39: Full-year 2013 Retail Pharmacy Segment (GAAP)
Full-year 2013: Retail Pharmacy y Segment g (GAAP results, which include 2013 legal settlement benefit & 2012 loss on early debt extinguishment) Change vs. (1) (in millions) 2013 2012 Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,618.2 65 618 2 3 1% 3.1% Gross profit . . . . .
Slide 40: End Notes
End Notes 1. During the fourth quarter of 2013, the company began recognizing revenue from the sale of prescription drugs within the Retail Pharmacy Segment when the prescription is picked up by the customer. Prior to this, revenue from the sale of prescription drugs was recognized at the time the p