CVS Health's fourth-quarter earnings climbed more than 4 percent in a performance that matched Wall Street expectations even though the pharmacy chain's decision to quit tobacco sales delivered an anticipated blow to its drugstore business.
The Woonsocket, Rhode Island, company said Tuesday that growing demand for expensive specialty drugs helped increase revenue from its pharmacy benefits management, or PBM, business nearly 22 percent in the quarter to $23.9 billion. That easily countered a 7.2 percent drop in revenue from the front end of its established drugstores, or the area outside the pharmacy.
CVS Health runs the nation's second-largest drugstore chain, with 7,800 locations, and one of the biggest PBM operations. The company drew national attention last year with its decision to phase out tobacco sales from its stores, a move the chain completed by September, when it also changed its corporate name from CVS Caremark.
The company said last fall that the move would cut earnings by between 7 cents and 8 cents per share. CVS executives said Tuesday that they did a little better than expected after completing the first full quarter without tobacco, although they didn't elaborate on the earnings impact. CEO Larry Merlo said the company's revenue from the front end of its established stores would have climbed slightly if the tobacco impact was removed.
Growing prescription volume, an acquisition and a new program that helps customers manage their specialty drug prescriptions all contributed the spike in revenue for CVS Health's PBM segment, its largest business. That segment runs prescription drug plans for employers, insurers and other customers.
Specialty drugs are very expensive, usually injected, drugs for complex and chronic health conditions — a category that is driving up overall spending on medications and becoming a big focus for insurers and employers who want help from companies like CVS Health in controlling these costs.
Overall, CVS Health earned $1.32 billion, or $1.14 per share, in the three months that ended Dec. 31. That compares with $1.27 billion, or $1.05 per share, in the final quarter of 2013. Total revenue climbed 13 percent to $37.06 billion.
Adjusted results, which exclude amortization costs tied to acquisitions, were $1.21 per share.
Analysts forecast about $36.07 billion in revenue, according to Zacks Investment Research.
CVS Health Corp. also reaffirmed on Tuesday a forecast it made in December for 2015 adjusted earnings ranging between $5.05 and $5.19 per share.
Analysts expect, on average, earnings of $5.15 per share, according to the data firm FactSet.
Company shares rose 85 cents to $100.41 in midday trading Tuesday while broader indexes rose slightly. The stock topped $101 earlier in the session, approaching an all-time high of $101.59 that CVS Health set last month.
CVS Health shares advanced 34 percent last year, tripling the gain of the broader Standard & Poor's 500 index.