CVS Earnings Yield Boosts to Starting Pay, Benefits

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Pharmacy giant CVS Health Corp. (NYSE: CVS) announced this morning that the company will lift its starting hourly wage from $9 to $11 beginning in April and introduce other improvements in employee benefits. The announcement followed the firm’s earnings report.

CVS reported diluted quarterly earnings per share (EPS) this morning of $1.92 on revenues of $48.39 billion. In the fourth quarter a year ago, the company reported EPS of $1.71 on revenues of $45.97 billion. Consensus estimates called for EPS of $1.89 on revenues of $45.97 billion.

For the full year, CVS reported EPS of $5.90 on revenues of $184.77 billion, compared with 2016 revenues of $177.53 billion and EPS of $5.84. Analysts were calling for revenues of $183.9 billion and EPS of $5.88. Full-year cash flow from operations totaled $8 billion, and free cash flow totaled $6.4 billion.

Regarding the increase in the company’s starting pay and other benefit increases, CEO Larry Merlo said:

As part of our ongoing commitment to the patients, customers and communities we serve, we said that we would invest our tax savings back into our business, and that’s exactly what we’re doing. Today, we’re building on the investments we’ve been making in our employees, in their wages, benefits and career development. It’s our employees who drive our performance and we appreciate how hard they work every day to deliver on our purpose of helping people on their path to better health. We are also making additional, significant, infrastructure investments that will allow us to accelerate our long-term growth objectives.

CVS also said it will not increase employee health insurance premiums for the 2018–2019 plan year. The company will absorb the entire increase for the 100,000 employees who have elected to enroll in the company-sponsored health plan.

Effective April 1, 2018, full-time employees who welcome a new child into their home can take up to four weeks away from work at 100% of their pay in a new parental leave program.

The pay and benefits increases reflect a $1.5 billion tax benefit CVS received as a result of tax law changes. The company joins a list of other major U.S. employers, like Walmart and Starbucks, in lifting hourly pay. CVS, however, is not offering bonus payments to employees as some other big companies have chosen to do.

Shortly after Thursday’s opening bell, CVS shares traded down about 0.9% at $73.70 in a 52-week range of $66.45 to $84.00. The 12-month consensus price target is $89.43.