Cvs Health Corporation · NYSE:CVS
Cvs Health — Q2 2014 Earnings Presentation
33 slides from Cvs Health's earnings presentation, Aug 5, 2014
Slide 1: Second Quarter 2014 Earnings Conference Call
Second Quarter 2014 Earnings Conference Call Larry Merlo President & Chief Executive Officer Dave Denton E Executive ti ViVice P President id t & Chi Chieff Fi Financial i l Offi Officer August 5, 2014
Slide 2: Forward-looking Statements
Forward-looking Statements During today’s presentation, we will make forward-looking statements within the meaning of the federal securities laws. By their nature, all forward-looking forward looking statements involve risks and uncertainties. uncertainties Actual results may differ materially from
Slide 3: Second Quarter: Continued Strength in 2014
Second Quarter: Continued Strength in 2014 Change vs. Q2 2014 Q2 2013 (1) Adjusted EPS $1.13 16.5% Retail Operating Profit $1,705 6.5% PBM Operating Profit $878 30.1% Free Cash Flow (YTD) $2,183 25.6% Refer to page 33 for end notes. 3
Slide 4: Health Reform, Exchanges and Medicaid
Business Update: Health Reform, Exchanges and Medicaid Latest data suggests ~8 million individuals enrolled in public exchanges 6.7 million individuals have gained Medicaid coverage While net number of newly-insured remains unclear, several million gained coverage and should provide positive Rx tren
Slide 5: Cardinal Health Venture: Red Oak Sourcing Formed
Business Update: Cardinal Health Venture: Red Oak Sourcing Formed Ten-year agreement forms largest generic sourcing entity here in the U.S. Completed formation of Red Oak Sourcing, LLC last month in Foxborough, Massachusetts CVS Caremark and Cardinal Health have longstanding working relationship; bu
Slide 6: 2015 Selling Season Update
PBM Business: 2015 Selling Season Update Gross wins for 2015 currently at $5.4 billion Net-new business of $2.6 $ billion – Includes business lost through acquisition, which makes up more than 60% of business lost – Excludes any impact from our individual Med D PDP business Renewals – Completed near
Slide 7: Specialty Pharmacy
PBM Business: Specialty Pharmacy Strong results, with revenues up ~53% y-o-y in Q2 – Key drivers of revenue growth include new business, the addition of C Coram, and d Sovaldi, S ldi the th new hepatitis h titi C d drug Continue to differentiate specialty offerings by providing high level of clinica
Slide 8: Specialty Pharmacy and 2015 Formulary
PBM Business: Specialty Pharmacy and 2015 Formulary Medical pharmacy management continues to generate high interest and uptake in the market Site of care offering through Coram enables us to provide patients more convenient, lower-cost alternatives to hospital infusions – At the physician physician’
Slide 9: SilverScript
PBM Business: SilverScript We have ~3 million lives currently in our individual PDP For the first half of 2014, normal monthly attrition has been only partially offset by choosers and auto-assignees – As we came out of sanction, we began to enroll choosers in February and to receive dual auto assign
Slide 10: Revenue And Script Growth
Retail Business: Revenue And Script Growth Total same-store sales increased 3.3% Pharmacy same-store sales increased 5.0% – Negative impact of ~160bps from new generic drug introductions – Estimate negative impact of ~130bps due to transfer of specialty scripts from our retail segment to our PBM seg
Slide 11: Front Store Trends
Retail Business: Front Store Trends Front store comps decreased 0.4% – Positive impact of ~80bps due to Easter shift – Comps would have been ~110bps higher if tobacco and estimated associated basket sales were excluded – Adjusting this tobacco impact and the Easter shift, front store comps were roug
Slide 12: Store Brands & Personalization
Retail Business: Store Brands & Personalization Store Brands – Share of our front store sales increased ~80bps to 18% in Q2 Personalization – During Q2 Q2, expanded ‘send send to card’ card digital coupon option for ExtraCare personalized offers, with strong adoption rate – Active email subscriber l
Slide 13: Real Estate Update
Retail Business: Real Estate Update Real Estate Update – Opened 34 new retail drugstores, relocated eight, and closed four, resulting lti ini 30 net-new t retail t il d drugstores t iin th the quarter t – On track to achieve 2% to 3% square footage growth for 2014 Navarro Discount Pharmacy purchase
Slide 14: Continued Strong Growth At MinuteClinic
Retail Business: Continued Strong Growth At MinuteClinic Revenues up 24% vs. same quarter last year Operate 860 clinics in 28 states and Washington, D.C. – 32 net new clinics added in Q2 – Plan to open at least 150 new clinics in 2014 Recently named the official retail medical clinic and sports phys
Slide 15: Financial Review
Second Quarter 2014 Earnings Conference Call Financial Review Dave Denton E Executive ti ViVice P President id t & Chi Chieff Fi Financial i l Offi Officer August 5, 2014
Slide 16: Capital Allocation & Cash Flows
Financial Update: Capital Allocation & Cash Flows Returned ~$1.5 billion to shareholders in second quarter – Dividends of $322 million • On track to surpass targeted payout ratio of 25% in 2014, and to reach 35% by 2018 – Repurchased 16 million shares for ~$1.2 billion • Still on track to complete a
Slide 17: Earnings Per Share
Income Statement: Earnings Per Share Adjusted EPS grew 16.5%, to $1.13 in Q2 – 2¢ per share above high end of guidance range – Reflects solid growth across our operating segments GAAP diluted EPS of $1 $1.06 06 per share Retail performed at the high-end of our expectations PBM operating profit growt
Slide 18: Revenues
Income Statement: Revenues Consolidated revenues of $34.6 billion, up 10.7% vs. LY PBM revenues of $21.8 $ billion, up 16.2% vs. LY – Strong performance driven by specialty, inflation, net-new business and product mix – Offset to some degree by lower mail choice claims and an increase in generic dis
Slide 19: Segment Mix Shift: Specialty Connect (SC)
Income Statement: Segment Mix Shift: Specialty Connect (SC) To best gauge our success, focus less on individual segment performance and more on performance of enterprise – Channel- and business-agnostic offerings will enhance enterprise performance, sometimes at the expense of one individual segment
Slide 20: Gross Profit Margin
Income Statement: Gross Profit Margin Consolidated gross margin of 18.3%, down ~40bps vs. LY driven by mix shift PBM gross margin of 5.5%, up ~35bps vs. LY – Increase primarily driven by growth in specialty business, favorable purchasing economics, increase in GDR and finalization in Medicaid reimbu
Slide 21: Operating Expenses
Income Statement: Operating Expenses Consolidated operating expenses were 11.9% of consolidated revenues, an improvement of ~50bps vs. LY PBM expenses were 1.5% of PBM revenues, an increase of ~10bps to LY Retail expenses were 21.3% of retail revenues, a decline of ~20bps vs. LY – Retail expenses gr
Slide 22: Operating Profit Margin
Income Statement: Operating Profit Margin Consolidated operating margin of 6.4%, an improvement of ~5bps vs. LY PBM operating margin of 4.0%, an improvement of ~45bps vs. LY – Strong operating profit growth of 30.1% vs. LY, just above high-end of expectations Retail operating margin of 10.1%, and im
Slide 23: Below-the-line
Income Statement: Below-the-line Net interest expense of $158 million, up ~$32 million vs. LY – Primarily driven by Q4 2013 debt issuance Weighted-average share count of 1.17 billion shares Effective tax rate of 39.2% 23
Slide 24: Cardinal Health Venture: Changes to Agreement
2014 Guidance: Cardinal Health Venture: Changes to Agreement Structure of final agreement a bit different from what was previously described Three ways arrangement can provide value to CVS Caremark: – CVS Caremark to receive 39 quarterly payments of $25.6 million starting in Q414 • Originally expect
Slide 25: 2014 Guidance: Solid Enterprise Growth
2014 Guidance: Solid Enterprise Growth Arial 18 Full-year 2014 Net Revenue Growth 8% to 9% (1)(4) Adjusted EPS $4.43 to $4.51 Year-over-year Growth (5) 11.75% to 14% GAAP Diluted EPS $4.16 to $4.24 Refer to page 33 for end notes. 25
Slide 26: 2014 Guidance: Healthy Outlook In PBM
2014 Guidance: Healthy Outlook In PBM Full-year 2014 Net Revenue Growth 13.75% to 14.75% (3) Total Adjusted Claims 1 060 billion to 1.068 1.060 1 068 billion Gross Profit Margin Modest decline (8) Operating Expense Modest improvement (% of revenue) (8) Operating Profit Growth 12.5% to 14.5% Operatin
Slide 27: 2014 Guidance: Healthy Outlook In Retail
2014 Guidance: Healthy Outlook In Retail Full-year 2014 (6) Net Revenue Growth 1.25% to 2% (7) Same-store Sales 0.25% to 1% (3) Same-store Adjusted Scripts 3.25% to 4.25% Gross Profit Margin Notable improvement (9) Operating Expense Modest decline (% of revenue) (9) Operating Profit Growth 7.25% to
Slide 28: 2014 Guidance: Consolidated Income Statement
2014 Guidance: Consolidated Income Statement Full-year 2014 Corporate Segment Expense $790 million to $800 million Intercompany Eliminations ~10.6% 10.6% (% of combined segment revenues) Gross Profit Margin Moderately down (10) Operating Expense Modest improvement (% of revenue) Operating Profit Mar
Slide 29: 2014 Guidance: Consolidated Income Statement
2014 Guidance: Consolidated Income Statement Full-year 2014 Net Interest Expense $630 million to $640 million Effective Tax Rate ~39.4% 39.4% (4) Weighted Average Shares ~1.17 billion Consolidated Amortization ~$520 million Consolidated D & A ~$1.9 $1 9 billion Refer to page 33 for end notes. 29
Slide 30: 2014 Guidance: Substantial Free Cash Flow
2014 Guidance: Substantial Free Cash Flow (billions) Full-year 2014 Operating Cash Flow $7.2 to $7.5 G Gross Capital C it l EExpenditures dit ($2 3) tto ($2 ($2.3) ($2.2) 2) (11) Sale-leaseback proceeds $0.6 to $0.5 Net Capital Expenditures ~($1.7) Free Cash Flow $5.5 to $5.8 Refer to page 33 for en
Slide 31: 2014 Guidance: Third Quarter
2014 Guidance: Third Quarter Arial 18 Q3 2014 Net Revenue Growth 7.75% to 9.25% Adjusted EPS $1.11 to $1.14 Year-over-year Growth (5) 5.25% to 8.25% GAAP Diluted EPS $1.04 to $1.07 31
Slide 32: 2014 Guidance: Third Quarter
2014 Guidance: Third Quarter Q3 2014 Net Revenue Growth 0.25% to 1.75% macy ail Same-store Sales ((1.0%)) to 0.5% Reta Pharm Same-store Adjusted Scripts 3.75% to 4.75% ((9)) Operating Profit Growth 7% to 9% macy ces Net Revenue Growth 14.25% to 15.25% Servic Pharm Operating Profit Growth (8) 1.5% to
Slide 33: End Notes
End Notes 1. Adjusted EPS equals income before income tax provision plus amortization, less adjusted income tax provision, divided by the weighted average diluted common shares outstanding. The adjusted income tax provision is computed using the effective income tax rate computed from the condensed