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CVS Caremark gets 2Q profit lift from new generics
August 6th, 2013
WOONSOCKET, R.I. – Introductions of new generic drugs helped boost profits at CVS Caremark Corp. for the second quarter as the company exceeded Wall Street's earnings forecast by a penny.
CVS said Tuesday that for the second quarter ended June 30, income from continuing operations attributable to CVS Caremark rose 15.9% to $1.1 billion, or 97 cents per share, compared with $967 million, or 81 cents per share, a year earlier. Adjusted earnings per share (EPS) exclude $124 million and $123 million of intangible asset amortization related to acquisition activity in the quarters ended June 30, 2013, and 2012, respectively.
The company said the gain stems mainly from continued introductions of higher-margin generics, which lifted operating profit in its retail pharmacy and pharmacy benefit management business units.
Analysts, on average, had forecast CVS' second-quarter adjusted EPS at 96 cents, with estimates ranging from a low of 94 cents to a high of 98 cents, according to Thomson Financial.
GAAP earnings per diluted share from continuing operations attributable to CVS Caremark for the second quarter were 91 cents, up from 75 cents a year ago.
Operating profit increased 15.2% to about $2 billion, CVS reported.
Overall in the second quarter, CVS Caremark saw net revenue edge up 1.7% to $32.25 billion from $30.71 billion in the prior-year period.
Sales for the CVS/pharmacy retail drug store business were up 1.9% to $16.14 billion in the second quarter. Same-store sales inched up 0.4% year over year, reflecting a 0.4% decline in the front end and a 0.8% gain in the pharmacy.
According to the company, the rise in comparable-store sales was fueled primarily by comp-store prescription volumes, partially offset by introductions of generic drugs, which carry lower prices, and the shift of the Easter holiday from April in 2012 to March in 2013.
Comparable pharmacy sales in the quarter were negatively impacted by 670 basis points from recent generic drug introductions. Front-end same-store sales were negatively impacted by 65 basis points due to the shift of the Easter holiday, CVS said.
Comp-store prescription count advanced 1.8% in the second quarter, with 90-day scripts counted as one prescription. On a 30-day equivalent basis, same-store prescription volumes increased 5%.
In the company's PBM segment, or Pharmacy Services, net revenue rose 2% to $18.8 billion for the second quarter, driven by volume increases across all channels and drug cost inflation in the specialty pharmacy business, partially offset by the impact of new generics, CVS reported.
Year over year, the generic dispensing rate increased by 270 basis points to 80.7% in the Pharmacy Services segment and by 280 basis points to 81.9% for CVS/pharmacy in the second quarter.
"Our second-quarter results reflect very strong operating performance, with operating profit increasing 15% enterprisewide, with 32% growth in the PBM and 9% growth in the retail business," CVS Caremark president and chief executive officer Larry Merlo said in a statement. "As expected, new generic drug introductions continued to be a significant growth driver across the enterprise, resulting in healthy margin expansion and earnings growth. We achieved adjusted EPS for the quarter at the high end of our guidance range despite a higher-than-anticipated share count."
CVS had a higher share count because it suspended stock buybacks during part of the second quarter while in negotiations with the Securities and Exchange Commission over an agreement in principle announced late last week, according to Merlo.
The company said it completed $355 million in share repurchases during the second quarter and $748 million year to date, which is less than originally expected.
"However, we remain committed to returning significant value to our shareholders through both dividends and share repurchases," Merlo stated. "We have delivered $1.7 billion in free cash flow year to date, and we expect to complete our planned $4 billion in share repurchases during 2013."
During the second quarter, CVS opened 23 new retail drug stores and closed one retail drug store and one retail specialty pharmacy store. Twenty-four retail drug stores also were relocated. As of June 30, 2013, the company operated 7,553 retail drug stores, 18 on-site pharmacies, 30 retail specialty pharmacy stores, 12 specialty mail-order pharmacies and four mail-service pharmacies.
Looking ahead, CVS Caremark narrowed its earnings guidance for the full-year 2013, primarily to reflect the timing of share repurchases and strong operating results. The company now projects adjusted EPS of $3.90 to $3.96 for fiscal 2013, compared with its previous forecast of $3.89 to $4.00.
CVS noted that the 2013 guidance estimates assume the completion of about $4 billion in previously authorized share repurchases this year. But with the repurchases back-half weighted instead of occurring ratably throughout the year as originally anticipated, the timing shift is estimated to dampen the accretive impact on full-year EPS by as much as 4 cents per share, the company explained.
For fiscal 2013, analysts on average project CVS' EPS at $3.98, with the forecast running from a low of $3.92 to a high of $4.10, according to Thomson Financial.