CVS Health Corp. warned on Thursday that its operating profit could fall this year as it plans to spend most of its $1.2 billion savings from the new U.S. tax law on reducing debt and paying employees more rather than boosting short-term profit.
Shares of the drugstore chain and pharmacy benefits manager fell almost three percent on the New York Stock Exchange.
CVS, which is in the process of buying health insurer Aetna for $69 billion, said it now expects full-year adjusted consolidated operating profit to range from an increase of 1.5 percent over last year to a decline of 1.5 percent. That is more pessimistic that its previous estimate of growth ranging from 1 percent to 4 percent.
“The disappointment here is that much of the tax reform benefit on earnings is essentially going away, so near-term it’s not going to provide as much lift to earnings as people were modeling,” Oppenheimer and Co. analyst Mohan Naidu said.
Using its tax savings, CVS said it will invest $425 million annually to raise its minimum wage for hourly employees, to $11 an hour, and offer a paid parental leave program.
It also said it will spend at least half its tax windfall on debt reduction and allocate at least $275 million to strategic investments in its business.
The raise for employees follows similar actions by Humana and Wal-Mart to attract workers at a time when a historically low unemployment rate is making it harder to find and retain minimum-wage workers.