CVS 2019 profit forecast a wide miss, shares fall 9 percent

By Manas Mishra

(Reuters) - CVS Health Corp on Wednesday forecast 2019 profit well below Wall Street forecasts due to weakness in its pharmacy business that serves long-term care facilities and slower than anticipated growth in drug prices, sending shares down as much as 9 percent.

Analysts questioned whether the issues across CVS's businesses, including integration of its $69 billion acquisition of health insurer Aetna, would be limited to 2019.

"People are finally starting to understand that this isn't a transition year, it's a transition decade," said R W Baird analyst Eric Coldwell.

Slowing growth of prescription drug prices, as drugmakers have caved to pressure from politicians to lower costs for U.S. consumers, has hit the outlook for the size of rebates, or discounts, manufacturers give CVS in return for coverage of their medicines by its pharmacy benefit management (PBM) business.

The unexpected slowdown will squeeze CVS profits because it has already guaranteed rebates in set dollar amounts to PBM clients, such as health plan managers and employers.

CVS, which owns a large chain of pharmacies in addition to its PBM and now insurance business, also revealed a $2.2 billion fourth-quarter goodwill impairment charge related to its long-term care business, which houses the Omnicare unit it bought in 2015. It had taken a $3.9 billion charge in the second quarter.

The company pointed to low occupancy rates in skilled nursing facilities and customer liquidity issues, including a significant customer bankruptcy, and said its 2019 financial outlook had worsened since the second-quarter charge.

Chief Executive Officer Larry Menlo said on a conference call that other challenges the company faces in 2019 include declining revenue from new generic drugs and ongoing questions around rebates. The U.S. government has proposed a rule that would overhaul how drug company rebates can be employed in government-run healthcare plans.

The company forecast 2019 adjusted profit of $6.68 to $6.88 per share, while analysts on average had estimated a profit of $7.41 per share, according to IBES data from Refinitiv.

"Getting through all these issues, even though we do like CVS's strategy for the long term, it's something that we don't think is going to happen overnight," Edward Jones analyst John Boylan said in an interview.

The focus on issues facing the company in the coming months and years overshadowed higher-than expected fourth-quarter profit.

CVS said it earned $2.14 per share excluding items, beating analysts' average estimate by 9 cents.

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 posted 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 12.5 percent to $54.42 billion in the quarter, shy of Wall Street estimates of $54.58 billion.

Shares of the company were down 7 percent at $64.99 after falling as low as $63.31 earlier on Wednesday.

(Reporting by Aakash Jagadeesh Babu and Manas Mishra in Bengaluru and Caroline Humer in New York; Editing by Saumyadeb Chakrabarty and Bill Berkrot)