CVS profit rockets up 41%, but warns April COVID-19 hit could persist

Dive Brief:

Across-the-board growth spurred CVS Health to beat Wall Street expectations for both earnings and revenue in the first quarter. Revenue of $66.8 billion in the period ended March 31 was up 8.3% from the same period last year, driving the health giant to a profit of $2 billion, up 41% year over year.
Though coronavirus had "minimal impact on the quarter," CVS does expect a "big impact in April," Karen Lynch, EVP, CVS Health and president, Aetna Business Unit told investors on a Wednesday morning call. Consumers increasingly stayed at home in April, resulting in a sharp reduction in foot traffic to stores, and filed fewer prescriptions due to fewer doctor visits, according to CVS' preliminary results from the month. Those headwinds could persist throughout the second quarter.
Full-year guidance remained unchanged, but CVS withdrew its operating income guidance for 2020. It expects cash flow from operations to be between $10.5 billion to $11 billion for the year.

Dive Insight:

CVS Health has a finger in a lot of different pies, which could allow it to weather the pandemic better than some more focused rivals.

The company reported a significant jump in use of digital and at-home offerings in the quarter, including MinuteClinic virtual visits up 600% and retail prescription home delivery up more than 1,000%, which may bode well for CVS' mission to become an inexpensive front door for consumers to the U.S. healthcare system.

"The nature of our business is to a degree recession-resistant," CEO Larry Merlo said on the call with investors. "As you think about the provision of healthcare in a more challenging economic environment, cost will become a bigger issue."

The healthcare behemoth saw its adjusted operating income jump 14% to $4.1 billion in the first quarter due to increased volume across all segments, though it was offset slightly by a decline in operating income in its payer business and continued reimbursement and pricing pressure in retail stores and for its pharmacy benefit manager Caremark.

CVS closed out the quarter with medical membership of 23.5 million people. Government membership was up almost 20% year over year to 5.9 million. Medicare Advantage membership grew sequentially by 11.3% in the quarter, outpacing the industry average of 6%, according to CVS.

Aetna's commercial membership slid 2% year over year to 17.6 million covered lives as consumers migrated from commercial plans to government products, a trend executives said was likely to continue due to unprecedented rates of U.S. unemployment. The shift is likely unwelcome, as employer-sponsored insurance is generally more profitable than Medicaid managed care.

The coronavirus aided the retail locations, as the ubiquitous drugstore chain reported revenue of $22.8 billion from its stores, up almost 8% year over year. CVS said in late March it plans to hire 50,000 people to keep up with the demand.

CVS is expanding its drive-thru COVID-19 testing locations and plans to have 1,000 up and running across five states by the end of this month. To date, CVS has administered nearly 90,000 tests, Merlo said.

Despite remaining on firm footing amid the crisis, CVS has had to pause some major initiatives. It's halted converting stores to health-focused HealthHUBs, though it does have 98 locations currently across 17 states, and still plans to have 1,500 locations by the end of 2021. CVS has also paused enrollment in its home hemodialysis clinical trial due to stay-at-home guidelines.

And CVS, which reported profit of $6.6 billion last year, has seen its stock flag this year amid market upheaval.