Monday, June 21

CVS Health’s forecast points to more pain at long-term care business

(Reuters) – CVS Health Corp blamed weakness in its long-term healthcare business for a shortfall in its full-year profit forecast, indicating more troubles at the unit it bought about four years ago.

FILE PHOTO: A logo of CVS Health is displayed on a monitor above the floor of the New York Stock Exchange shortly after the opening bell in New York, U.S., December 5, 2017. REUTERS/Lucas Jackson/File Photo

The company’s shares fell 7 percent as it also revealed a $2.2 billion goodwill impairment charge related to the business, which houses the Omnicare unit, in the fourth quarter, taking the total charges at the unit to more than $6 billion in the past year.

The Omnicare business, which the company bought for about $10 billion in 2015, provides prescription drugs to nursing homes and other long-term care centers. It has been hit by lower occupancy rates in skilled nursing facilities and reimbursement pressures in the past few quarters.

“The long-term care business has continued to experience industry wide challenges that have impacted our ability to grow the business at the rate that was originally estimated when the company acquired Omnicare,” the company said in a statement.

CVS said the unit’s final budget for 2019 showed a significant deterioration in its forecasts for 2019, resulting in further updates to its long-term forecast beyond 2019.

“We are taking comprehensive actions to move past them,” Chief Executive Officer Larry Menlo said.

The company, which bought health insurer Aetna last year, forecast full-year 2019 adjusted profit of $6.68 per share to $6.88 per share, while analysts on average currently expect $7.41 per share, according to IBES data from Refinitiv.

Evercore ISI analysts said the main issues with the company appeared to be long-term care challenges, pharmacy reimbursement pressure, lower drug price rise and questions around rebates.

For the fourth quarter, CVS Health earned $2.14 per share excluding items, beating the average estimate of $2.05 per share.

Same-store sales at the company’s pharmacies that sell prescription drugs rose 7.4 percent in the quarter, compared with an expected 6.1 percent rise forecast by analysts.

The company booked a net loss of $419 million in the fourth quarter ended Dec. 31, compared with a net income of $3.29 billion, a year earlier when it benefited from changes to U.S. tax laws.

Revenue rose to $54.42 billion in the quarter from $48.39 billion a year earlier.

Reporting by Aakash Jagadeesh Babu and Manas Mishra in Bengaluru; Editing by Saumyadeb Chakrabarty

Our Standards:The Thomson Reuters Trust Principles.

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