February 8, 2018 / 4:00 PM / in 6 months

CVS to raise minimum wage of workers; profit beats

NEW YORK (Reuters) - Drugstore chain and pharmacy benefits manager CVS Health Corp said on Thursday it would use part of a $1.2 billion savings from the new U.S. corporate tax law to increase hourly pay for its workers and reported fourth-quarter revenue and earnings that beat expectations.

People walk by a CVS Pharmacy store in the Manhattan borough of New York City, New York, U.S., November 30, 2017. REUTERS/Shannon Stapleton

The tax windfall will help CVS raise its minimum wage for hourly employees to $11 an hour, effective April 2018, and offer a paid parental leave program. The company will invest $425 million annually toward these efforts.

The company’s move follows similar actions by others like Humana Inc and Walmart Inc, which used the savings to attract workers at a time when the U.S. unemployment rate is at 4.1 percent, a 17-year low, making it harder to find and retain minimum wage employees.

“With $1.2 billion in cash benefits from the Tax Cuts and Jobs Act, we will be able to make strategic investments in our business in 2018 to stimulate greater growth over the longer term,” Chief Financial Officer David Denton said in a statement.

The company will spend at least half of the benefits on debt reduction and expects to allocate a benefit of at least $275 million in 2018 from the new tax plan in its business. In January the company said it expected its tax rate to be about 27 percent this year versus 39 percent previously.

As a result of these investments, CVS updated its full-year forecast for adjusted consolidated operating profit to a range of up 1.5 percent to down 1.5 percent. That compared with previous guidance of growth in a range of 1 percent to 4 percent.

Last year, CVS said it would buy health insurer Aetna for $69 billion and tackle soaring healthcare spending through lower-cost medical services in pharmacies.

Revenue at the company’s pharmacy services unit rose 9.2 percent to 34.2 billion in the quarter, primarily driven by growth in its pharmacy network and specialty pharmacy claims.

However, revenue at its retail pharmacy division rose a scant 0.3 percent after an increase in the generic dispensing rate and reimbursement pressure. Front store same-store sales fell 0.7 percent because of lower customer traffic.

Net income attributable to the company rose 92.6 percent to $3.3 billion, or $3.22 per share, in the quarter, from $1.7 billion, or $1.59 per share, a year earlier, helped by an income tax benefit of $1.5 billion.

Excluding tax savings, the company earned $1.92 per share, beating analysts’ average estimate of $1.89, according to Thomson Reuters I/B/E/S.

Revenue rose 5.3 percent to $48.4 billion, exceeding the $47.5 billion expected by Wall Street.

CVS said it expected adjusted operating profit growth of 0.5 percent to 4.5 percent during the first quarter.

The company’s shares were down 2.1 percent $72.71 in early trade.

Reporting by Nandita Bose in New York; Editing by Andrew Hay and Steve Orlofsky

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