CVS Health Corp. (CVS.N) gave a 2019 adjusted earnings forecast that’s substantially below Wall Street’s expectations, following the drugstore and pharmacy-benefits management company’s about US$68 billion takeover of insurer Aetna late last year. The shares fell.
Adjusted earnings for 2019 will be $6.68 to $6.88 a share, the company said, compared with the $7.36 average of Wall Street estimates. Read the details here.
Key Insights
-The company is trying to set low expectations after the Aetna deal’s November closure. Chief Executive Officer Larry Merlo called 2019 a “year of transition” in a statement and said CVS would need to “address the impact of certain headwinds that are having a disproportionate impact in 2019 compared to prior years.”
-Another deal is dragging down CVS’s results: its 2015 takeover of nursing-home drug provider OmniCare. Nursing homes are seeing fewer customers and aren’t as profitable. CVS is taking a US$2.2 billion charge on the deal after those trends “have impacted our ability to grow the business at the rate that was originally estimated.” The charge follows a $3.9 billion writedown in the second quarter.
-CVS is also struggling on costs. While it got a lower tax rate thanks to federal tax changes, the company has had to put some of those savings back into wages and benefits for workers.
Market Reaction
-CVS shares dropped in early trading, and were down 5.2 per cent to US$66.25 at 7:06 a.m. in New York.
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