Income from continuing operations rose nearly 17% during the third quarter at CVS Caremark Corp., as its pharmacy benefit management segment drove a double-digit sales surge.

CVS Caremark, third quarter, sales, revenue, same-store sales, PBM, pharmacy benefit management, retail drug store, front end, pharmacy, pharmacy services, Larry Merlo, Walgreen, Express Scripts, pharmacy sales, prescription business, Mark Miller, William Blair & Co.

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CVS Caremark sees 3Q profit, sales surge

November 6th, 2012

WOONSOCKET, R.I. – Income from continuing operations rose nearly 17% during the third quarter at CVS Caremark Corp., as its pharmacy benefit management segment drove a double-digit sales surge.

CVS said Tuesday that income from continuing operations for the three months ended September 30 climbed 16.7% to $1.01 billion, while earnings from continuing operations soared 21.5% to 79 cents per diluted share.

Adjusted earnings were 85 cents per share, which exceeded analysts’ consensus prediction by 2 cents.

Net revenue for the third quarter grew 13.3% to $30.2 billion, ahead of analysts’ average forecast of $30.09 billion, as CVS’ pharmacy services segment posted a 22.2% leap in sales to $18.1 billion. Management attributed the strong performance to new client starts resulting from the 2012 selling season, prescription drug price inflation and the growth of the company’s Medicare Part D program.

The top line for CVS’ retail drug store business expanded 5.5% to $15.5 billion, as same-store sales grew 4.3%. Same-store results in the pharmacy improved 5.3%, reflecting strong underlying prescription growth as well as a “significant benefit” from the contract dispute between Walgreen Co. and Express Scripts Inc. (ESI), which ended in September.

CVS estimates that same-store pharmacy sales were negatively impacted by about 905 basis points due to recent generic drug introductions.

“The 905-basis-point adverse impact on retail pharmacy sales from recent generic introductions was higher than Walgreens’ estimated 780-basis-point impact in the comparable period, which highlights that CVS is doing an effective job of lowering cost for patients and payers while capturing higher gross-profit dollars for shareholders,” William Blair & Co. analyst Mark Miller wrote in a research note released Tuesday.

Pharmacy same-store script counts gained 8.7% when counting 90-day scripts as one prescription, but advanced 11.1% when converting 90-day scripts into three prescriptions, CVS reported.

Same-store front-end sales showed a modest 2.2% increase for the quarter.

“I’m very pleased with our third quarter earnings, which exceeded the high end of our guidance range by 2 cents per share,” president and chief executive officer Larry Merlo said in a statement. “We posted strong results across the enterprise, with the pharmacy services segment significantly outpacing our growth expectations.

“The retail pharmacy business continued to capitalize on the market disruption resulting from the impasse between two of our competitors, and our retention of the prescriptions we gained during that impasse has been strong since their dispute was resolved in mid-September,” Merlo stated. “Given what we have seen to date, we are optimistic that we will exceed our initial retention goal for the fourth quarter, and now expect to retain at least 60% of the prescriptions gained during the impasse.”

As a result of the strong third quarter performance and management’s confidence about retaining the prescription business gained from the Walgreens/ESI impasse, the company has raised and narrowed its guidance for adjusted earnings per share to a range of $3.38 to $3.41 per diluted share, up from a prior forecast of $3.32 to $3.38 per share. Reported earnings are expected to range from $3.15 to $3.18 a share.

Miller indicated in his report that CVS likely will retain more of the pharmacy business picked up from the Walgreens/ESI situation than it has forecast.

“CVS indicates that the retention of Walgreens’ prescriptions from the contract dispute has been strong, and the company now expects to retain at least 60% of scripts gained during the impasse in the fourth quarter,” he explained. “We continue to view CVS’ outlook for retention as conservative, as we estimate Walgreens has recaptured roughly 25% of prescriptions lost during the impasse thus far through October.”