WOONSOCKET, R.I. (AP) — Earnings power from a major acquisition helped raise CVS Heath’s profit 42% in the first quarter, and the company hiked its 2019 forecast after starting the year with a more pessimistic outlook.
The drugstore chain and pharmacy benefit manager set a new full year earnings forecast largely above Wall Street expectations after projecting in February earnings that would fall well short.
Revenue from the company’s pharmacy benefit management side grew 3% to $33.56 billion in the first quarter, helped by an increase in prescriptions processed and higher prices for brand-name medications. Pharmacy benefit managers, or PBMs, run prescription coverage for large clients like employers and insurers.
CVS Health leaders also told analysts on Wednesday that they were making progress improving their long-term care business, which generated a $2.2 billion charge in last year’s fourth quarter, and the company was cutting costs and closing under-performing stores on the drugstore side of operations.
Expectations for CVS Health have been low, and the company’s first quarter will help restore investor confidence in its management, SVB Leerink analyst Ana Gupte said in a research note.
CVS runs one of the nation’s largest drugstore chains with more than 9,900 locations and processes well over a billion prescriptions annually as a PBM. Late last year, it added health insurance when it acquired the insurer Aetna for roughly $69 billion.
A federal judge is still reviewing that acquisition, but CVS Health reported results on Wednesday that included a full quarter of Aetna’s contribution for the first time. The insurer helped to offset challenges that CVS Health and its competitors are facing.
Payers like employers and insurers are pushing cost cuts, which squeeze profits on each prescription. Generic drugs are less profitable, and stores face growing competition in the areas outside their pharmacies.
The Aetna deal gave CVS Health a new line of business with 23 million customers and helped its PBM operation retain a key client.
The Woonsocket, Rhode Island, company cited Aetna as a key to quarterly revenue numbers that jumped 35%, to $61.65 billion. Net income climbed to $1.42 billion from $998 million while adjusted earnings totaled $1.62 per share.
That was 12 cents better than expected, according to a survey by Zacks Investment Research. Revenue also topped forecasts.
For 2019, CVS now expects adjusted earnings to range from $6.75 to $6.90 per share.
Analysts predict, on average, earnings of $6.79 per share, according to FactSet.
Shares of CVS Health Corp. jumped more than 5% to $57.19 in midday trading.
The company’s stock price had fallen 17% so far this year.