CVS Health Corp.'s third-quarter earnings exceeded Wall Street expectations, as growing sales of specialty drugs helped offset the loss of tobacco products, which the company stopped selling in September.
The nation's second- largest drugstore chain's net income fell to $948 million, or 81 cents per share, from $1.25 billion, or $1.02 per share a year earlier.
Adjusted to extinguish debt and for amortization costs, earnings were $1.15 per share, topping the $1.14 per share that was the average estimate of analysts surveyed by Zacks Investment Research. Revenue also surpassed expectations, rising to $35.02 billion, compared to the $34.65 billion analysts had forecast, according to Zacks.
Revenue from the Woonsocket, R.I.-based company's pharmacy benefits management, or PBM, side increased 16 percent, and operating profit from that segment grew 7.3 percent, helped by new business and the growth of expensive specialty drugs for complex chronic health conditions.
"PBM revenue growth and profitability were above our estimates, boosted by net new business and growth in specialty pharmacy, including ... contributions from Specialty Connect," a new program that allows CVS customers with these prescriptions to either pick them up or get them through the mail, according to Meredith Adler, a Barclays Capital analyst.
CVS said revenue from its retail pharmacy business increased 3 percent, but the loss of tobacco sales hurt earnings by 3 cents per share. The full-year impact of missing tobacco products will reduce earnings by 7 to 8 cents per share, the company said.
"As expected, the tobacco exit negatively impacted," Peter Costa, a Wells Fargo Securities analyst, said in a note. "We expect this impact may nearly double in Q4."
Herald wire services contributed to this report.
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