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CVS Caremark cites retail Rx as catalyst in 2Q
August 7th, 2012
WOONSOCKET, R.I. – Robust sales and operating results in the retail pharmacy business boosted profit in the second quarter at CVS Caremark Corp.
Adjusted earnings per share (EPS) topped analysts' average estimate for the quarter, hitting the high mark of their forecast.
CVS Caremark said Tuesday that total net revenue for the three months ended June 30 climbed 16.3% to $30.7 billion from $26.4 billion a year earlier.
The company's CVS/pharmacy retail drug store business saw sales rise 6.9% to $15.8 billion in the second quarter. Same-store sales grew 5.6% year over year, reflecting gains of 2.3% in the front end and 7.2% in the pharmacy.
CVS noted that the comparable pharmacy sales increase got a sizable lift from Walgreen Co. not being in the network of pharmacy benefit manager Express Scripts Inc. during the quarter. (Walgreens is slated to rejoin the Express Scripts pharmacy network Sept. 15.) Pharmacy same-store sales were negatively impacted by about 500 basis points from generic drug introductions.
In addition, CVS said, the comparable pharmacy prescription count rose 7.7% when 90-day scripts are counted as one script. When converting 90-day scripts into three scripts, same-store prescription volumes grew 9.8% in the quarter, according to the company.
In the PBM business, known as the Pharmacy Services segment, revenue surged 28.2% to $18.4 billion in the second quarter. That was fueled mainly by new client starts from what CVS called a "highly successful 2012 selling season," along with drug cost inflation and new activity resulting from its acquisition of the Medicare Part D business of Universal American Corp. last year.
The generic dispensing rate during the quarter increased by 390 basis points to 78% in the PBM unit and by 350 basis points to 79.1% in the retail pharmacy segment, CVS added.
"I'm very pleased with our strong operating performance this quarter, as we delivered results that were at or above our expectations in both the retail and PBM segments," Larry Merlo, president and chief executive officer of CVS Caremark, said in a statement. "Our retail business continued to benefit from the market disruption caused by the contractual impasse between two of our competitors, and we have detailed plans in place to maximize retention following their mid-September resolution.
"While the 2013 PBM selling season is still under way, we have achieved positive net-new business to-date, and we are focused on the opportunities that remain," Merlo added. "With our stable business and differentiated offerings, we remain very well-positioned in the marketplace."
On the earnings side, income from continuing operations attributable to CVS Caremark rose to $967 million in the second quarter from $814 million in the prior-year period. The company attributed the gain primarily to an 18.5% jump in operating profit in the retail drug store business, which it said was lifted by the contract dispute between Walgreens and Express Scripts, the rise in generic drugs dispensed and growth of CVS' Maintenance Choice program.
Adjusted EPS from continuing operations attributable to CVS Caremark for the second quarter came in at 81 cents, compared with 65 cents a year ago. Analysts had projected 2012 second-quarter EPS, on average, at 79 cents, with forecasts ranging from a low of 72 cents to a high of 81 cents, according to Thomson Financial.
CVS said adjusted EPS in the 2012 and year-ago quarters excludes $123 million and $114 million, respectively, of intangible asset amortization from acquisition activity. GAAP diluted EPS from continuing operations attributable to CVS Caremark in the 2012 second quarter was 75 cents, compared with 60 cents a year earlier.
During the second quarter, CVS opened 36 new drug stores, relocated 24 stores, and closed eight stores and one on-site pharmacy.
As of June 30, the company operated 7,381 retail drug stores, 28 on-site pharmacies, 31 retail specialty pharmacy stores, 12 specialty mail-order pharmacies and five mail-order pharmacies in 44 states, the District of Columbia and Puerto Rico.
For the first half of 2012, overall revenue rose 18% to $61.5 billion from $52.1 billion in the year-ago period. Sales climbed 8.4% to nearly $31.9 billion in the retail drug store business for the six months ended June 30, while PBM revenue swelled 30.2% to $36.7 billion.
Meanwhile, adjusted earnings from continuing operations attributable to CVS Caremark in the six-month period advanced to almost $1.9 billion, or $1.46 per share, from nearly $1.7 billion, or $1.21 per share, a year earlier. On a GAAP basis, net income per diluted share in the 2012 period was $1.34 versus $1.12 in the prior-year span.
The strong performance so far this year, along with a positive outlook, led CVS Caremark to raise its earnings guidance for 2012. The company projects adjusted EPS of $3.32 to $3.38, up from its earlier guidance of $3.23 to $3.33.
Analysts, on average, forecast CVS' 2012 adjusted EPS at $3.32, with estimates running from a low of $3.28 to a high of $3.35.
CVS added that the higher guidance reflects an expected benefit of 5 cents per share in the third and fourth quarters from the Walgreens-Express Scripts contract situation. In the fourth quarter, during which Walgreens will re-enter the Express Scripts network, CVS expects to retain at least 50% of the prescription business gained during the contract impasse.