CVS Health Corp. missed Wall Street’s revenue expectations in the third quarter, despite sales jumping due to acquisitions. The company trimmed its profit forecast for this year, triggering a stock selloff.
The drugstore chain and pharmacy benefits manager also noted significant headwinds that forced it to reduce its 2016 profit forecast by a nickel per share. Those include a soft seasonal business, slowing prescription growth in the overall market and recent pharmacy network changes expected to reduce the number of prescriptions filled at its pharmacies this year. Those network changes will have a bigger effect in 2017, CVS predicted.
Its shares fell $9.36, or 11.3 percent, to $74 in midday trading, with shares six times normal volume already changing hands.
The operator of the second-largest U.S. drugstore chain reported a 23.5 percent boost in profit to $1.54 billion, or $1.43 per share. Earnings, adjusted for one-time gains and costs, were $1.64 per share, topping Wall Street forecasts of $1.57 per share.
Quarterly revenue jumped 15.5 percent to $44.62 billion, getting a lift from a boost in prescription volume and higher retail sales at its drugstores. Still, that missed Street expectations for revenue of $45.31 billion.
The bulk of the revenue boost came from the CVS pharmacy benefits unit, with an increase of 19.2 percent to $4.9 billion. The key driver was a 23.3 percent surge in prescription claims processed, to a total of 282.6 million.
The retail and long-term care unit had a 12.5 percent revenue boost to $20.1 billion, mainly on operations within Omnicare, a provider of pharmacy services to nursing homes and other clients. CVS Health bought Omnicare in 2015. CVS also benefited from its December 2015 acquisition of the pharmacy business of retailer Target.
For the fourth quarter, CVS Health expects its per-share earnings to range from $1.64 to $1.70, well below the $1.79 analysts had forecast.
The Woonsocket, Rhode Island-based company expects full-year earnings in the range of $5.77 to $5.83 per share, down from prior guidance of $4.92 to $5. It did not provide a forecast for its revenue.
The company announced on Nov. 3 that it was cutting about 600 jobs – out of more than 240,000 nationwide – to streamline its operations.
Meanwhile, CVS Health’s two main competitors in the U.S. drugstore market, Walgreens and Rite Aid, are planning to team up in a $9.41-billion deal that is still being reviewed by federal regulators. That combination could create a drugstore chain with more than 12,700 U.S. locations, or far more than CVS Health operates. It now owns more than 9,600 drugstores globally, counting the Target business.
The company noted that its retail pharmacy market share increased more than 2 percentage points in the third quarter, to 23.8 percent.
CVS also runs the country’s second-largest pharmacy benefits manager, or PBM. PBMs run prescription drug plans for employers, insurers and other customers. They process mail-order prescriptions, handle bills for prescriptions filled at retail pharmacies and set up formularies that determine patient coverage and copayments for individual prescription drugs.
“While we expect a healthy increase in PBM operating profit growth in 2017, we expect a decrease in retail operating profit growth,” CVS Chief Executive Larry Merlo said in a statement.
The company noted its board approved a new, multiyear share repurchase program worth up to $15 billion, on top of the $3.7 billion remaining under its December 2014 share buyback program. Companies typically buy back large numbers of shares to boost their stock price and mollify disappointed investors.