CVS cuts annual profit forecast as M&As seen driving up costs


FILE PHOTO: CVS Health logo is seen displayed in this illustration taken, May 3, 2022. REUTERS/Dado Ruvic/Illustration

 

By Raghav Mahobe and Leroy Leo

(Reuters) -CVS Health Corp cut its full-year profit forecast on Wednesday, citing increased costs related to its acquisitions of Signify Health and Oak Street Health, driving its shares 2% lower in premarket trading.

CVS, like other healthcare players, is on an acquisition spree as it looks to expand beyond its core business to catch up with rivals by snapping up companies such as primary care provider Oak Street Health and home healthcare service provider Signfiy Health.

The company said it would have to undertake transaction and integration costs related to the two deals, especially due to the early closure of the Oak Street transaction on Tuesday, compared with its earlier expectation of completing it later this year.

Morningstar analyst Julie Utterback said investors might be disappointed that the firm pushed down its annual earnings forecast after an earlier-than-expected close of the Oak Street acquisition. 

The company cut its 2023 adjusted per-share earnings forecast to between $8.50 and $8.70 from between $8.70 and $8.90.

CVS CEO Karen Lynch said although the early closure could weigh on its earnings in the short term, it would also enable the healthcare conglomerate to unlock synergies earlier.

The company, however, beat estimates for first-quarter profit and revenue on Wednesday, as a recovery in medical procedures in the healthcare sector boosted sales of prescription drugs.

Sales at CVS’ health services segment rose 12.6%. The business houses its specialty pharmacy operation, which sells treatments for complex conditions like cancer, as well as the pharmacy benefits manager, which acts as a middleman between insurers, hospitals and drug makers.

The retail pharmacy segment revenue rose nearly 8% due to higher prescription drug sales and a rise in the prices of branded drugs.

CVS posted an adjusted per-share profit of $2.20 in the quarter, above estimates of $2.09, according to Refinitiv data.

Source

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