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CVS Health (CVS) Q2 Earnings Beat Estimates, Margins Down
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CVS Health Corporation's (CVS - Free Report) second-quarter 2022 adjusted earnings per share (EPS) of $2.40 dropped 0.8% year over year and exceeded the Zacks Consensus Estimate by 11.1%. The adjusted EPS figure considers certain asset amortization costs, acquisition-related integration costs and other adjustments.
Our model projected an adjusted EPS of $2.14 cents in Q2.
On a reported basis, the company’s GAAP EPS of $2.23 rose 6.2% year over year.
Total revenues in the second quarter rose 11% year over year to $80.64 billion. The top line also beat the Zacks Consensus Estimate by 5.3%.
The second-quarter revenue compares to our own estimate of $76.68 billion.
Quarter in Detail
Pharmacy Services revenues were up 11.7% to $42.81 billion in the reported quarter. The upside was primarily driven by increased pharmacy claims volume, growth in specialty pharmacy and brand inflation, partially offset by continued client price improvements.
For the Pharmacy Services segment, we projected $41.14 billion of revenues in the second quarter.
Total pharmacy claims processed rose 3.9% on a 30-day equivalent basis, attributable to strong net new business, greater utilization and extension of the cough, cold, and flu season compared to the previous year, partially offset by lower COVID-19 vaccinations. Without considering the COVID-19 vaccinations, total pharmacy claims processed increased by 5.7% on a 30-day equivalent basis.
CVS Health Corporation Price, Consensus and EPS Surprise
Revenues from CVS Health’s Retail/LTC segment were up 6.3% year over year to $26.29 billion. The impressive growth was driven by increased prescription and front store volume, including the sale of COVID-19 OTC test kits and the impact of an extended cough, cold and flu season versus the prior year and pharmacy brand inflation. However, this growth was partially offset by recent generic introductions, persistent pharmacy reimbursement pressure and a decline in COVID-19 vaccinations and diagnostic testing.
This figure compares with our Retail/LTC revenue estimate of $24.63 billion for Q2.
Within the Health Care Benefits segment, the company registered revenues worth $22.76 billion in the second quarter, up 10.9% year over year. The upside was primarily driven by growth across all product lines. The segment also benefited from favorable development of the prior years’ health care cost estimates in its Government Services and Commercial businesses.
For Health Care Benefits segment, we projected $22.44 billion of revenues in the second quarter.
Margin
Total cost (including Benefit Costs) rose 12.6% to $66.89 billion in the second quarter. Gross profit rose 4.1% to $13.74 billion. The gross margin contracted 113 basis points (bps) to 17%.
We projected an adjusted gross margin of 18% for Q2.
The operating margin in the quarter under review contracted 29 bps to 5.7%, with a 5.6% surge in operating profit to $4.57 billion.
The adjusted operating margin, according to our model, was 5.7% for Q2.
2022 Guidance
CVS Health updated its EPS guidance for full-year 2022.
The company currently expects adjusted EPS in the band of $8.40-$8.60 (up from the earlier projected $8.20-$8.40). The Zacks Consensus Estimate for 2022 earnings is pegged at $8.34.
The company has also updated its full-year operating cash flow projection in the range of $12.5-$13.5 billion (up from the prior projection of $12.0-$13.0 billion).
Our Take
CVS Health exited the second quarter of 2022 with earnings and revenues beating the Zacks Consensus Estimate. Robust sales growth across all three operating segments drove the top-line results. The extension of the cough, cold, and flu season benefitted sales performance within the Retail and Pharmacy businesses. Within the Health Care Benefits arm, the continued growth across the entire range of insured and self-insured medical, pharmacy, dental and behavioral health products and services instills optimism. The company’s continued efforts to offer free health screenings in underserved communities to advance health equity seem encouraging too. The raised EPS guidance for 2022 is indicative of this growth momentum continuing.
However, the contraction of margins on escalating costs does not bode well. The decline in COVID-19 vaccinations and testing sales is a downside. Further, persistent pharmacy reimbursement headwinds also continued to impact business performance in the quarter under review.
Zacks Rank and Key Picks
CVS Health currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space that have announced quarterly results are Quest Diagnostics Incorporated (DGX - Free Report) , Medpace Holdings, Inc. (MEDP - Free Report) and Merck & Co. (MRK - Free Report) .
Quest Diagnostics, carrying a Zacks Rank #2 (Buy), reported second-quarter 2022 adjusted EPS of $2.36, which beat the Zacks Consensus Estimate by 9.8%. Revenues of $2.45 billion outpaced the consensus mark by 7.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Quest Diagnostics has an earnings yield of 7.1% compared with the industry’s 3.2%. DGX’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average being 12.1%.
Medpace Holdings, having a Zacks Rank #2, reported second-quarter 2022 adjusted EPS of $1.46, which beat the Zacks Consensus Estimate by 8.9%. Revenues of $351.2 million outpaced the consensus mark by 1.3%.
Medpace Holdings has an estimated growth rate of 22.7% for full-year 2022. MEDP’s earnings surpassed estimates in the trailing four quarters, the average being 17.3%.
Merck reported second-quarter 2022 adjusted earnings of $1.87 per share, beating the Zacks Consensus Estimate by 11.9%. Revenues of $14.6 billion surpassed the Zacks Consensus Estimate by 5.4%. It currently has a Zacks Rank #2.
Merck has a long-term estimated growth rate of 10.1%. MRK’s earnings surpassed estimates in the trailing four quarters, the average surprise being 16.8%.
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CVS Health (CVS) Q2 Earnings Beat Estimates, Margins Down
CVS Health Corporation's (CVS - Free Report) second-quarter 2022 adjusted earnings per share (EPS) of $2.40 dropped 0.8% year over year and exceeded the Zacks Consensus Estimate by 11.1%. The adjusted EPS figure considers certain asset amortization costs, acquisition-related integration costs and other adjustments.
Our model projected an adjusted EPS of $2.14 cents in Q2.
On a reported basis, the company’s GAAP EPS of $2.23 rose 6.2% year over year.
Total revenues in the second quarter rose 11% year over year to $80.64 billion. The top line also beat the Zacks Consensus Estimate by 5.3%.
The second-quarter revenue compares to our own estimate of $76.68 billion.
Quarter in Detail
Pharmacy Services revenues were up 11.7% to $42.81 billion in the reported quarter. The upside was primarily driven by increased pharmacy claims volume, growth in specialty pharmacy and brand inflation, partially offset by continued client price improvements.
For the Pharmacy Services segment, we projected $41.14 billion of revenues in the second quarter.
Total pharmacy claims processed rose 3.9% on a 30-day equivalent basis, attributable to strong net new business, greater utilization and extension of the cough, cold, and flu season compared to the previous year, partially offset by lower COVID-19 vaccinations. Without considering the COVID-19 vaccinations, total pharmacy claims processed increased by 5.7% on a 30-day equivalent basis.
CVS Health Corporation Price, Consensus and EPS Surprise
CVS Health Corporation price-consensus-eps-surprise-chart | CVS Health Corporation Quote
Revenues from CVS Health’s Retail/LTC segment were up 6.3% year over year to $26.29 billion. The impressive growth was driven by increased prescription and front store volume, including the sale of COVID-19 OTC test kits and the impact of an extended cough, cold and flu season versus the prior year and pharmacy brand inflation. However, this growth was partially offset by recent generic introductions, persistent pharmacy reimbursement pressure and a decline in COVID-19 vaccinations and diagnostic testing.
This figure compares with our Retail/LTC revenue estimate of $24.63 billion for Q2.
Within the Health Care Benefits segment, the company registered revenues worth $22.76 billion in the second quarter, up 10.9% year over year. The upside was primarily driven by growth across all product lines. The segment also benefited from favorable development of the prior years’ health care cost estimates in its Government Services and Commercial businesses.
For Health Care Benefits segment, we projected $22.44 billion of revenues in the second quarter.
Margin
Total cost (including Benefit Costs) rose 12.6% to $66.89 billion in the second quarter. Gross profit rose 4.1% to $13.74 billion. The gross margin contracted 113 basis points (bps) to 17%.
We projected an adjusted gross margin of 18% for Q2.
The operating margin in the quarter under review contracted 29 bps to 5.7%, with a 5.6% surge in operating profit to $4.57 billion.
The adjusted operating margin, according to our model, was 5.7% for Q2.
2022 Guidance
CVS Health updated its EPS guidance for full-year 2022.
The company currently expects adjusted EPS in the band of $8.40-$8.60 (up from the earlier projected $8.20-$8.40). The Zacks Consensus Estimate for 2022 earnings is pegged at $8.34.
The company has also updated its full-year operating cash flow projection in the range of $12.5-$13.5 billion (up from the prior projection of $12.0-$13.0 billion).
Our Take
CVS Health exited the second quarter of 2022 with earnings and revenues beating the Zacks Consensus Estimate. Robust sales growth across all three operating segments drove the top-line results. The extension of the cough, cold, and flu season benefitted sales performance within the Retail and Pharmacy businesses. Within the Health Care Benefits arm, the continued growth across the entire range of insured and self-insured medical, pharmacy, dental and behavioral health products and services instills optimism. The company’s continued efforts to offer free health screenings in underserved communities to advance health equity seem encouraging too. The raised EPS guidance for 2022 is indicative of this growth momentum continuing.
However, the contraction of margins on escalating costs does not bode well. The decline in COVID-19 vaccinations and testing sales is a downside. Further, persistent pharmacy reimbursement headwinds also continued to impact business performance in the quarter under review.
Zacks Rank and Key Picks
CVS Health currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space that have announced quarterly results are Quest Diagnostics Incorporated (DGX - Free Report) , Medpace Holdings, Inc. (MEDP - Free Report) and Merck & Co. (MRK - Free Report) .
Quest Diagnostics, carrying a Zacks Rank #2 (Buy), reported second-quarter 2022 adjusted EPS of $2.36, which beat the Zacks Consensus Estimate by 9.8%. Revenues of $2.45 billion outpaced the consensus mark by 7.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Quest Diagnostics has an earnings yield of 7.1% compared with the industry’s 3.2%. DGX’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average being 12.1%.
Medpace Holdings, having a Zacks Rank #2, reported second-quarter 2022 adjusted EPS of $1.46, which beat the Zacks Consensus Estimate by 8.9%. Revenues of $351.2 million outpaced the consensus mark by 1.3%.
Medpace Holdings has an estimated growth rate of 22.7% for full-year 2022. MEDP’s earnings surpassed estimates in the trailing four quarters, the average being 17.3%.
Merck reported second-quarter 2022 adjusted earnings of $1.87 per share, beating the Zacks Consensus Estimate by 11.9%. Revenues of $14.6 billion surpassed the Zacks Consensus Estimate by 5.4%. It currently has a Zacks Rank #2.
Merck has a long-term estimated growth rate of 10.1%. MRK’s earnings surpassed estimates in the trailing four quarters, the average surprise being 16.8%.