In response to management's expectations for fourth quarter results and sharing forecasts for 2019, the health giant's actions CVS Health (NYSE: CVS) 7% drop at 11:05 am EST on Wednesday.
Here is an overview of the fourth quarter figures:
- Revenues increased 12.5% to $ 54.4 billion. The double-digit increase is largely due to the finalization of Aetna's $ 70 billion takeover. This figure was less than the $ 54.6 billion projected by Wall Street.
- GAAP profit was a loss of $ 0.37 per share. This includes a goodwill impairment charge of $ 2.2 billion related to its acquisition of Omnicare in 2015.
- Adjusted earnings increased 11% to $ 2.14 per share. This figure was ahead of the $ 2.05 forecast by market observers.
Here are the tips that are shared with investors for the upcoming quarter and year:
- The turnover of the first quarter of 2019 is expected to reach between 59.6 and 60.5 billion dollars. The midpoint is slightly higher than the $ 59.8 billion expected by Wall Street.
- Adjusted EPS for the first quarter of 2019 is expected to be in the range of $ 1.49 to $ 1.53. This is well below the $ 1.67 expected by market watchers.
- The 2019 annual business figure is expected to reach between $ 249.8 and $ 254.3 billion. That's more than the $ 247.6 billion expected by Wall Street.
- Adjusted EPS is expected to fall between $ 6.68 and $ 6.88. This is much less than the consensus estimate of $ 7.41 by analysts.
Traders sold the company's shares heavily in response to disappointing forecasts and the depreciation of goodwill.
CVS Health CEO Larry Merlo knew the company's advice would not appeal to investors. He therefore endeavored to mitigate the shock:
2019 will be a year of transition for Aetna's integration and focus on the main pillars of our growth strategy. We are fully aware of the need to cope with some headwinds that have a disproportionate impact in 2019 compared to previous years and, importantly, we are taking comprehensive steps to overcome them. We fully understand the importance of striking a balance between short-term execution and the long-term vision, and we are confident that our actions will position us well in 2020 and beyond.
The CEO, Merlo, remained confident that the company's multi-year acquisition would create shareholder value over time. However, the company's shares have significantly underperformed the market over the past three, three and five years, so the theory has not worked for investors yet.
The management calling 2019 to be a "year of transition" characterized by a decline in adjusted earnings from one year to the next, I have a hard time seeing this health care conglomerate revisit its previous record anytime soon.