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February 10, 2015 12:00 AM

CVS Health kicks tobacco, stays financially fit in fourth quarter

Rachel Landen
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    CVS Health Corp. reported robust gains for its final quarter of 2014, balancing a drop in store sales from removing tobacco products from the company's shelves with rising revenue from the company's service sector.

    The Woonsocket, R.I.-based chain told investors and analysts Tuesday that total revenue rose 12.9% to $37.1 billion for the period ended Dec. 31, compared with the same period the prior year.

    The biggest driver behind that double-digit growth was CVS' pharmacy services segment, where revenue rose 21.7% to $23.9 billion. The improvement came partially as a result of CVS' continued shift into the specialty pharmacy area, first with its January 2014 acquisition of infusion services provider Coram, and then with the May launch of its mail-order prescription services program known as Specialty Connect.

    Operating profit for the quarter rose 4.7% to $2.3 billion, trickling down to a net income improvement of 4.5%. CVS ended the December quarter with $1.32 billion in net income, up from $1.27 billion a year ago.

    Growth in Managed Medicaid helped spur an 8.2% increase to the number of pharmacy network claims processed between October and the end of the year. Those were up to 221.6 million for the period, compared with 204.9 million in the year-ago quarter.

    CVS' retail pharmacy segment saw revenues rise 2.9% to $17.7 billion. Even with the introduction of less costly generic prescriptions and the company's mail order pharmacy, pharmacy same store sales increased 5.5% for the quarter.

    The boost to the segment's top line came despite a drop in front-of-the-store sales at least partially tied to CVS' removal of tobacco products. The chain, previously known as CVS Caremark, phased out tobacco sales in its nearly 8,000 stores last year as the company also tweaked its name to reflect a heightened focus on health and healthcare delivery.

    At the time, CEO Larry Merlo predicted that CVS would lose about $2 billion in annual revenue from the company's decision to eliminate tobacco products. But it seems that CVS' renewed spotlight on health—through its specialty pharmacy programs, MinuteClinics, and pharmacy benefits management for more than 65 million members—has helped counteract any loss.

    Last year “will be remembered as the year in which we rebranded our company as CVS Health and made the right decision to exit the tobacco category, better aligning our company with patients, payers and providers,” Merlo said in a news release.

    Adjusted earnings per share hit $1.21 for the quarter, putting CVS at the top of its projected range of $1.18 to $1.21 a share. CVS shares were up more than 2% to $101.68 Tuesday following the company's earnings announcement.

    Follow Rachel Landen on Twitter: @MHrlanden

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