CVS Health has reported an uplift in sales for the fourth quarter and the full fiscal year, but an analyst flagged several issues that lied beneath the headline figure.
The company’s total revenues were up 4.2 per cent for both the quarter and year ended December 31, with CEO David Joyner noting growth in key areas including the pharmacy and consumer wellness segment.
According to Reuters, CVS beat Wall Street estimates for fourth-quarter profit, easing investor fears and sending shares up more than 15 per cent in early trading on Wednesday.
However, GlobalData MD Neil Saunders believes the company remains in “a state of flux”, citing the loss-making healthcare benefits business and revenue decline of the health services segment. He also noted the 20.7 per cent decrease in net income on the bottom line.
“On the one hand, we believe that CVS is a sprawling and overly complex business that does not have adequate control and focus over all its divisions.
“On the other hand, it is weathering the storm impacting drugstores somewhat better than rivals like Walgreens and Rite Aid,” Saunders elaborated.
The most consumer centric division is the pharmacy and consumer wellness segment, where sales rose 7.5 per cent in the quarter. While this is pleasing, the problem is that higher volumes are not translating into better profits, evidenced by a 13.3 per cent drop in operating income, according to the analyst.
Another issue is the lackluster store proposition, with prices remaining above average and assortments lacking excitement and newness, Saunders continued. Customer service is also mediocre due to understaffing, he added.
“Unfortunately, CVS has been neglectful of retail,” he commented. “Rather than seeing retail as an afterthought, CVS should put it in its rightful place as the linchpin for the rest of the business.”
But there is still some good news for the company that comes with the new leadership, Saunders said, adding that CVS should have a new focus in the fiscal year ahead.
The company expects adjusted earnings per share of $5.75 to $6.00 and cash flow from operations of approximately $6.5 billion this fiscal year.
