Dive Brief:

CVS Health handily beat Wall Street estimates in the second quarter of 2019, with all three of its major businesses exceeding analyst expectations in results posted Wednesday before the opening bell. Shares were up roughly 5% following the earnings release.

The retail chain saw revenue of $63.4 billion, up 35.2% year over year, mostly due to acquisition of the health insurance giant Aetna in November as well as stronger volume and brand drug price inflation boosting pharmacy benefit management and drugstore results.

The results led CVS to boost its estimates for full-year earnings.

Dive Insight:

CVS had a strong start to this year following the healthcare giant's mediocre financial performance last year amid pricing pressures. The tailwinds helping CVS in the first quarter kept blowing in the second, with operating income of $3.3 billion — up almost 343% year over year.

"Although the company's 2019 operating income will be lower than what we had originally expected at the closing of the Aetna acquisition and challenges — particularly reimbursement pressures — remain, we are encouraged by the operating performance for the first half of the fiscal year and by the pace of debt reduction since the close of the acquisition," Moody's Vice President Mickey Chadha said.

CVS took on $8 billion in debt as part of the Aetna deal.

The company's facing a slew of pressures bearing down on revenue, especially narrowing pharmacy margins, an increased generic dispensing rate and investor concern over the future of health policy with a Washington where such matters have taken center stage in the run-up to the 2020 election.

"We continue to advocate for policies that lower out-of-pocket costs for consumers and demonstrate the innovation and cost-saving solutions the private sector can deliver as the broader questions of care access and quality are debated nationally," CVS CEO Larry Merlo said on a Wednesday morning call with investors.

Another sticking point for the Rhode Island-based company has been its integration of Aetna, which faces a roadblock in federal judge Richard Leon, who is conducting an unusually stringent review of the merger.

Aetna revenue exceeded CVS' internal expectations, driven primarily by strong growth in Medicare products.

In the quarter, total revenues in CVS' healthcare benefits segment, which includes Aetna and SilverScript, CVS' Part D prescription drug plan, totaled $17.4 billion. Membership remained stable over the quarter at 22.8 million as increases in Medicare and Medicaid products were offset by declines in commercial.

CVS promises cost savings of $400 million by year's end, $800 million in 2020 and $900 million in 2021 from the tie-up with Aetna. The company is already trialing a series of initiatives utilizing Aetna beneficiary data with CVS' expansive brick-and-mortar footprint, including one Merlo teased earlier this summer for coordinated care for knee replacements.

Merlo's push to establish his company as the "front door" to health services in the U.S. includes expanding its specialized HealthHUB store model. CVS plans to open 1,500 HealthHUB locations by the end of 2021, with an expansion to three more metro areas later this year and an additional ten in the first half of 2020.

Some analysts think CVS HealthHUBs, which devote 20% of their floor space to health services with a focus on preventive care and wellness, represent the chain's first foray into primary care, an area in which competitor Walgreens has already invested resources.

CVS' PBM, CVS Caremark, saw revenues of $34.8 billion in the quarter, up 4.2% with adjusted claim volume up 4% year over year, driven primarily by net new business, CFO Eva Boratto said on the call, along with collaboration with other PBMs and a prolonged allergy season.

"The administration's withdrawal of the rebate rule provides perhaps the most significant recognition to date of the importance and the value of the PBM and the significant cost increases that would have resulted in eliminating the power of formularies to lower premiums and drive price discounts for Medicare Part D beneficiaries," Merlo said on the call.

Caremark also earned higher rebates in the quarter, a function of its procurement activities with pharmaceutical companies and improved formulary compliance, Boratto said.

CVS pharmacies filled 19% more prescriptions in the second quarter this year than last, which execs attributed to medication adherence programs and a stronger-than-usual allergy season.

The company hiked its full-year forecast citing the results, expecting operating income between $11.8 and $12 billion, earnings per share between $4.93 and $5.04 and cash flow from operations between $10.1 and $10.6 billion.