CVS 4Q13 Earnings Call Notes

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A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Drawing the line at tobacco

“let us be clear. You cannot compare a bar of chocolate or a bag of chips to a pack of cigarettes. Those products used in moderation will not harm one’s health. The same cannot be said about tobacco. There is no amount of tobacco use that’s considered safe.”

Negative comps at CVS front of store

“As for the front store business, comps decreased 1.9%, reflecting a decline in traffic partially offset by an increase in basket size. Recall that we are comping against a very strong cough and cold season we experienced in December of 2012, and our cough and cold business was down about 5% in the quarter.”

Giving up tobacco to cost 2.1B in revenue

“As you know, last week we announced our planed exit from the tobacco category. On a 12 month basis, we estimate that we will lose $2 billion in revenues, about $1.5 billion directly from tobacco sales and other $0.5 billion from the rest of that shoppers’ basket. That equates to approximately $0.17 per share on an annual basis.”

This is about the larger role CVS is playing in healthcare

“This decision is about CVS Caremark playing a growing role in our healthcare system”

New customer to think about

“You think about the retail customer, you think about know whether it’s the client, be it the employer, health plan, but there’s also a new customer emerging, okay? Provider groups and hospitals”

New customers reimbursed by outcome. Tobacco a big problem driving up cost

“I will give you two examples of where we think that the decision will make a difference. If you look at ACOs and physician practice groups today, they are increasingly focused on outcomes, because more and more of it is being linked to their reimbursement rates and a key areas that ACOs are focused on, is the role that tobacco place in exacerbating a lot of chronic conditions that are driving cost up in the healthcare systems, so many of these ACOs have developed number of metrics to track this. The results their programs take aim at smoking cessation, again, the use of these products as part of their part of their reimbursement models.

If you think about all the different ways that we serve, millions of customers each and every day through our retail pharmacies, our MinuteClinics, our patients and pharmacy counseling through Caremark channels and we see our decision more fully aligning with your outcomes-based reimbursement models [taking] and you and we think that we will become the pharmacy of choice for these entities and physicians.”

This decision checks a box for the client, but doesn’t win business on its own

“as we have discussed, we think that our decision creates even further alignment with our client. So I would think that all things being equal, okay, that this certainly gives us another check next to our name. But I think that we still have to be priced correctly and we still have to serve the client correctly.”