Fourth-quarter revenue at CVS Caremark Corp. surged by double digits, lifted by a major pharmacy benefit management contract, and management raised its first-quarter earnings guidance to reflect potential sales gains from the dispute between Walgreen Co. and Express Scripts Inc.


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CVS ups guidance due to Walgreens PBM scrap

February 8th, 2012

WOONSOCKET, R.I. – Fourth-quarter revenue at CVS Caremark Corp. surged by double digits, lifted by a major pharmacy benefit management contract, and management raised its first-quarter earnings guidance to reflect potential sales gains from the dispute between Walgreen Co. and Express Scripts Inc.

Total sales also grew by double digits for the full year, while adjusted earnings per share (EPS) for the fourth quarter and the year were in line with financial analysts' projections.

CVS Caremark said Wednesday that it has hiked its earnings projection for the 2012 first quarter and full year to reflect an expected benefit to first-quarter results of about 3 cents per share from the contract impasse between rivals Walgreens and Express Scripts. CVS noted that the raised guidance doesn't reflect any potential gain beyond the first quarter.

For 2011, overall revenue in the fourth quarter ended Dec. 31 jumped 15.2% to $28.3 billion from $24.6 billion a year earlier.

In the retail pharmacy segment, sales were up 4% to $15.5 billion for the quarter. Same-store sales rose 2.5%, reflecting gains of 0.1% in the front end and 3.6% in the pharmacy. CVS Caremark noted that pharmacy same-store results were negatively impacted by 50 basis points from calendar day shifts (one extra Saturday and one fewer Friday) and by 235 basis points from generic drug introductions but got a lift of about 160 basis points on a net basis from the Maintenance Choice program, which enables mail-order pharmacy customers to pick up prescriptions in CVS/pharmacy stores.

The company added that same-store prescription volumes in the quarter increased 2.1% with 90-day scripts counted as one script but grew by 4.4% with 90-day scripts counted as three 30-day scripts.

Meanwhile, revenue in CVS Caremark's PBM business, or its pharmacy services segment, swelled by 32.4% to $15.9 billion in the fourth quarter. The company attributed the sharp increase mainly to the addition of a previously announced, long-term contract with Aetna Inc. plus new activity from its acquisition of the Medicare Part D business of Universal American Corp. last year.

CVS Caremark also reported a quarterly rise in its generic dispensing rate, which climbed by 210 basis points to 75.9% in its retail drug store business and by 220 basis points to 75% in its PBM unit versus a year ago.

On the earnings side, income from continuing operations attributable to CVS Caremark for the fourth quarter inched up to $1.1 billion from $1 billion in the prior-year period, fueled by improved operating profit in the retail drug store and PBM businesses, the company said.

Adjusted EPS from continuing operations attributable to CVS Caremark for the 2011 fourth quarter, excluding intangible asset amortization from acquisition activity, came in at 89 cents, up from 79 cents a year earlier. The average analyst estimate was 89 cents, with the forecast ranging from a low of 87 cents to a high of 92 cents, according to Thomson Financial.

For the 2011 full-year period, CVS Caremark's total revenue rose 11.8% to $107.1 billion from $95.8 billion in 2010. That reflected sales gains of 3.9% to $59.6 billion in the drug store segment and 24.9% to $58.9 billion in the PBM unit. Same-store sales increased 2.3% for the year.

Income from continuing operations attributable to CVS Caremark for 2011 edged up to $3.5 billion from $3.4 billion in 2011. Excluding intangible asset amortization related to acquisition activity, adjusted EPS for 2011 was $2.80 versus $2.68 in 2010. Analysts' average projection was $2.80, with estimates running from a low of $2.79 to a high of $2.83.

"2011 was a year of great accomplishment for CVS Caremark. We executed successfully on a number of key initiatives across the company and reported solid financial results, delivering on our promises," president and chief executive officer Larry Merlo said in a statement.

"Our retail business continued to post strong top- and bottom-line results, and our PBM enjoyed strong revenue growth, another very successful selling season and great progress on several important initiatives," Merlo explained. "These include the development of a number of unique, new integrated offerings as well as the streamlining initiative, which is expected to produce cumulative savings from 2011 through 2015 of more than $1 billion. We generated $4.6 billion in free cash for the year, exceeding our goal, and returned more than $3.5 billion to our shareholders in the form of dividends and share repurchases."

In the fourth quarter, CVS Caremark opened 24 new retail drug stores, closed one and relocated five in the fourth quarter. As of Dec. 31, the chain operated 7,327 retail drug stores, compared with 7,182 a year earlier.

Looking ahead, the company forecasts adjusted EPS of $3.18 to $3.28 for full-year 2012, on the low end of the average analyst estimate of $3.24 and analysts' projected range of $3.20 to $3.40. CVS expects the drug store unit's operating profit to increase 8.5% to 10.5%, up from a range of 7% to 9%, and the PBM segment's operating profit growth to grow 11% to 15%.

"As we close the chapter on 2011, we are optimistic that we can deliver even better results in 2012," Merlo added. "We have the right people, the right assets, and the right plans in place to continue to reinvent pharmacy and benefit from the changing health care landscape. Our retail business continues to execute successfully, while our PBM is poised to return to healthy operating profit growth in 2012"

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