FILE- In this Aug. 7, 2018, file photo a CVS Pharmacy building sign rests on a Jackson, Miss., store. CVS Health topped fourth-quarter earnings forecasts, but the nation’s second-largest drugstore chain also debuted a 2019 outlook that fell far short of Wall Street expectations. The company said Wednesday, Feb. 20, 2019, that it expects adjusted earnings to range between $6.68 and $6.88 this year. FactSet says analysts expect earnings of $7.35 per share. (AP Photo/Rogelio V. Solis, File)

Trouble at CVS Health long-term care business weighs heavily

February 20, 2019 - 9:15 am

CVS Health beat fourth-quarter earnings forecasts, but a struggling long-term care business took another huge bite out of the company's performance and its initial 2019 forecast was weaker than expected.

Shares tumbled nearly 9 percent before the opening bell Wednesday.

CEO Larry Merlo said in a prepared statement that 2019 would be a "year of transition" as the company integrates the health insurer Aetna, which it purchased in a roughly $69 billion deal last year. A federal judge is still evaluating the acquisition.

CVS Health expects adjusted earnings to range between $6.68 and $6.88 this year. That's well short of the per-share earnings of $7.35 that Wall Street had been anticipating, according to a survey of industry analysts by FactSet.

CVS Health Corp., based in Woonsocket, Rhode Island, runs more than 9,900 retail locations and processes over a billion prescriptions annually as a pharmacy benefit manager.

The company also runs a business that provides services to long-term care facilities, and CVS Health booked a $2.2 billion charge from that in the quarter. It said that business struggled with operational problems and the bankruptcy of a significant customer.

CVS was forced to adjust after that segment's updated budget showed "significant additional deterioration" in its projected results for this year compared with an analysis done several months ago.

The company had already booked a $3.9 billion charge in last year's second quarter from that business, which it has struggled to grow that business after spending more than $10 billion a few years ago to buy the pharmaceutical distributor Omnicare.

Merlo told analysts in 2015, when CVS Health announced the deal, that Omnicare gave CVS Health a "substantial growth opportunity" with the U.S. population aging. The company touted Omnicare's national reach in dispensing prescription drugs to assisted living and skilled nursing homes, long-term care facilities, hospitals and other care providers.

But problems quickly surfaced. Less than a year after the deal's completion, Omnicare agreed to pay more than $28 million to resolve allegations that the drug distributor accepted kickbacks for pushing an anti-seizure medication on doctors treating nursing home patients.

Omnicare had already spent hundreds of millions of dollars resolving kickback litigation before CVS Health made its acquisition offer.

The latest long-term care charge led to a $419 million loss for CVS Health in the fourth quarter.

Earnings adjusted for one-time items totaled $2.14 per share, as revenue jumped more than 12 percent to $54.24 billion.

Analysts expected earnings of $2.09 per share and $54.61 billion in revenue, according to FactSet.

CVS Health shares fell $6.11, to $63.80, in premarket trading.

That stock price also slid nearly 10 percent last year and is still below the closing price of $75.53 it registered Oct. 25, 2017, the day before The Wall Street Journal first reported on the possibility of an Aetna deal.

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This story has been corrected to show that the company posted a net loss of $419 million in the fourth quarter, not $421,000.

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