CVS Caremark Profit Jumps 18 Pct; Boosts Outlook

by Tom Murphy
Tuesday Aug 7, 2012
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CVS Caremark Corp.’s second-quarter net income jumped 18.4 percent, as new business for its drugstore chain and an expansion of its pharmacy benefits management segment pushed revenue higher.

Its adjusted earnings topped Wall Street estimates, the company raised its forecast for 2012 and CVS shares rose more than 2 percent in premarket trading.

The Woonsocket, R.I., company said a recently settled split between rival drugstore chain Walgreen Co. and Express Scripts Holding Co. sent customers to CVS drugstores, and it aims to keep them. CEO Larry Merlo said the split added between 6.5 million and 7 million prescriptions for his pharmacies in the quarter, and it contributed about 3.5 cents per share to earnings.

Walgreen used to fill prescriptions for St. Louis-based Express Scripts, which runs drug plans for employers, insurers and other customers as the nation’s largest pharmacy benefits manager, or PBM. The companies let a contract between them expire at the end of last year, but they said last month they will resume doing business Sept. 15.

Even so, CVS Caremark still forecasts a gain of about 5 cents per share in the third and fourth quarters combined from the split. In this year’s fourth quarter, it expects to keep at least 50 percent of the business it gained since the split began. Merlo has said pharmacy customers are hard to lose and, once a drugstore loses them, hard to regain.

"We’ve had the better part of nine months now to introduce these new customers to the CVS brand," he said.

In the second quarter, CVS Caremark earned $966 million, or 75 cents per share. That’s up from $816 million, or 60 cents per share, a year ago.

Its adjusted earnings came to 81 cents a share. Analysts expected, on average, 79 cents per share, according to FactSet.

Revenue grew 16 percent to $30.71 billion from $26.4 billion. Analysts surveyed by FactSet expected $31.02 billion.

Revenue from CVS Caremark’s PBM business climbed 28 percent to $18.4 billion, helped in part by the acquisition of Universal American Corp.’s Medicare prescription drug coverage business. Retail pharmacy revenue rose 7 percent to $15.8 billion, despite taking a hit from some generic drug introductions.

Top-selling medicines like the cholesterol fighter Lipitor and the blood thinner Plavix have lost U.S. patent protection within the past year. Generic drugs hurt pharmacy revenue because they cost less than brand-name products. But they also help profitability because they provide a wider margin between the cost for the pharmacy to purchase the drugs and the reimbursement received.

CVS Caremark now expects 2012 adjusted earnings to range between $3.32 and $3.38 per share, up from its previous forecast of $3.23 to $3.33 per share. Analysts expected $3.33 per share.

CVS Caremark runs the second-largest chain of drugstores in the United States after Walgreen and one of the nation’s largest pharmacy benefits management businesses. It had 7,381 retail locations at the end of the quarter.

CVS shares rose 2.6 percent, or $1.15, to $46.05 in premarket trading.

Copyright Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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