WOONSOCKET, R.I. (WPRI) – CVS Health, Rhode Island’s largest private company, said Thursday it expects the newly enacted federal tax law to save the company more than $1 billion this year.
CVS revealed the number in a news release outlining its earnings expectations for 2018 and updating investors on its proposed mega-merger with insurer Aetna. Wall Street reacted favorably to the update, with CVS shares rising more than 4% in New York Stock Exchange trading as of 10:15 a.m. Thursday.
CVS has long complained that it paid one of the highest effective tax rates among American corporations, largely because its operations are domestic-focused. The Woonsocket company said it expects its effective tax rate will fall to about 27% in 2018, down from the mid-30s, under the new law. The reduced rate will increase CVS’s cash flow by about $1.2 billion during the year.
CVS also said its earnings for the final quarter of 2017 will “meaningfully benefit” from the legislation, which President Trump signed on Dec. 22.
“With the financial flexibility that tax reform provides, the company anticipates making strategic investments in future areas of growth in its business, particularly as CVS Health and Aetna combine to remake the consumer health experience, and will have more to say as plans are finalized,” CVS said.
On the Aetna merger, CVS said it continues to expect the deal will close during the second half of 2018, though its earnings forecast for the year does not include any impact from the transaction.
As of last month, CVS had more than 8,000 workers in Rhode Island, including about 5,300 at its headquarters in Woonsocket. That makes it one of the state’s largest employers, behind only state government and the Lifespan health system, each of which employ well over 10,000.
Among Rhode Island elected leaders, opinions on the new tax law fell along party lines, with Democrats united in opposition and Republicans supportive overall. Some other large local companies that have expressed optimism about the law’s effects on their business include Citizens Financial Group and insurer FM Global.
“For Amica, a lower tax rate will support our continued capital investments in technology and help fund our growth initiatives, which we expect will create job growth within our company,” Amica spokesman Brendan Dowding said last month.