CVS 1Q16 Earnings Call Notes

Larry J. Merlo – President, Chief Executive Officer & Director

Cost management is our PBM clients’ top concern

“we held our client forum in late March, which was attended by about 900 people, and clients acknowledged that their top concern is cost management, with service running a close second. And I’m pleased to report that we have been able to deliver on both fronts. Now in this environment of rising healthcare costs, clients are looking to us for proactive cost management solutions that anticipate market changes that impact trend. And they are adopting more aggressive strategies, particularly formulary design and specialty management, to mitigate these trend drivers.”

Pulled back on broad promotions in front of store

” we’ve continued to pull back on broad-based promotions, which has resulted in fewer visits from lower-value customers. Front store margins once again increased notably in the quarter, benefiting from these efforts to rationalize our promotional strategies, along with growth in the higher-margin health and beauty businesses. So we continue to test, learn and refine strategies to achieve the optimal balance between traffic and profitable growth.”

Margin compression in Pharmacy

“you’ve heard us reference that margin compression in pharmacy is – you really have two drivers behind it. You’ve got the mix change into some of the lower-margin businesses, principally Medicare and Medicaid. Again, very productive on top line, okay? And then you have on an apples-to-apples basis just the sheer step-down in profitability. So you’ve got both of those forces creating some downward pressure.”

May be seeing some impact from consumer directed health plans

David M. Denton – Chief Financial Officer & Executive Vice President

Expect to produce $5.3-$5.6B in FCF this year

“Our expectation is that we’ll return more than $5 billion to our shareholders in 2016 through a combination of both dividends and share repurchases. As Larry mentioned, we generated approximately $1.8 billion of free cash in the first quarter, and we continue to expect to produce free cash of between $5.3 billion and $5.6 billion this year.”

Helena B. Foulkes – Executive Vice President, President – CVS Pharmacy

Front of store is important as a door to pharmacy especially health and beauty

“Yeah, it’s a great question, something we spent a lot of time thinking about because ultimately we see the role of the front store as essentially a door into the pharmacy. This is where consumers get connected to CVS, and ultimately over time, they start using us for prescription. So it’s a very important part of the business is consumers think about us. And it’s why we’ve been shifting more and more of our focus towards health and beauty. Because when our customers think about healthcare, obviously they think pharmacy first, but they think health and beauty”