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CVS Caremark 3Q results better than expected
November 5th, 2013
WOONSOCKET, R.I. – Strong profit and sales gains lifted CVS Caremark Corp. over the high end of Wall Street's earnings forecast for the third quarter.
The company said Tuesday that for the third quarter ended Sept. 30, income from continuing operations attributable to CVS Caremark climbed to $1.26 billion, up nearly 25% from $1.01 billion a year earlier.
CVS said its retail drug store and pharmacy benefit management (PBM) businesses benefited from increased dispensing of generic drugs, which carry higher profit margins, as well as continued growth in its Maintenance Choice program, in which mail-order customers have the option to pick up prescriptions at a CVS/pharmacy location.
Adjusted earnings per share (EPS) from continuing operations attributable to CVS Caremark came in at $1.09 for the third quarter, up from 85 cents a year ago. Results reflect a pretax gain of $72 million, or about 4 cents per share, from a legal settlement, CVS noted. Excluding that gain, adjusted EPS for the quarter was $1.05. The company added that adjusted EPS for the 2013 and 2012 third quarters excludes $124 million and $121 million, respectively, of intangible asset amortization from acquisition activity.
On average, analysts had projected CVS' third-quarter adjusted EPS at $1.02, with estimates ranging from a low of $1.01 to a high of $1.03, according to Thomson Financial.
GAAP earnings per diluted share from continuing operations attributable to CVS Caremark for the 2013 third quarter was $1.03, compared with 79 cents a year earlier, CVS reported. GAAP EPS includes the impact of the legal settlement in the 2013 quarter.
On the revenue side, CVS saw net sales in the 2013 third quarter rise 5.8% to $31.97 billion from $30.23 billion in the prior-year period.
Retail pharmacy revenue grew 5% to $16.28 billion in the quarter from $15.50 billion a year earlier. Same-store sales were up 3.6%, reflecting a 5.7% increase in the pharmacy and a 1% decrease in the front end.
CVS said softer traffic contributed to the comparable-store sales decline in the front end, although basket size and margin improved modestly in the front end during the quarter.
Overall comp-store sales growth in the third quarter stemmed mainly from increased prescription volumes, partially offset by the impact of new generic drugs, which have lower prices, according to CVS. Prescription count rose 1.4% when 90-day prescriptions are counted as one prescription and was up 4.5% on a 30-day equivalent basis (when 90-day prescriptions are counted as three prescriptions). The company said introductions of generic drugs negatively impacted comparable pharmacy sales by 320 basis points.
In the PBM segment, or Pharmacy Services, third-quarter sales climbed to $19.48 billion, up 7.8% from $18.08 billion in the year-ago period. CVS said the gain was primarily driven by the broad-based growth of claims and drug cost inflation in the specialty pharmacy business, partially offset by the impact of new generics.
Year over year, generic dispensing rate in the third quarter rose about 160 basis points to 81.5% in the retail pharmacy segment and 170 basis points to 81% in the PBM segment, CVS reported.
Third-quarter operating profit came in at $2.16 billion, up 19.2% from $1.81 billion a year earlier.
"Our third-quarter results reflect strong operating performance across the enterprise. Adjusted earnings per share excluding the settlement gain exceeded the high end of our guidance by 2 cents per share, primarily reflecting better-than-expected third-quarter performance in the PBM. We are well on track for another year of strong growth in 2013," Larry Merlo, president and chief executive officer of CVS Caremark, said in a statement.
"Year to date, we have also generated significant free cash, which we will continue to use to enhance shareholder value," Merlo added. "Between dividends and share repurchases, we expect to return $5 billion to our shareholders in 2013."
CVS said it opened 49 new retail drug stores, relocated 22 stores and closed one store during the third quarter. As of Sept. 30, the drug chain operated 7,601 retail drug stores, as well as 18 on-site pharmacies, 30 retail specialty pharmacy stores, 12 specialty mail-order pharmacies and four mail-service pharmacies.
Analyst Mark Miller of William Blair & Co. said CVS Caremark's third-quarter results continued the company's operating momentum.
"Third‐quarter adjusted 'cash' EPS of $1.05 (excluding a $0.04 legal settlement gain),
up 23% versus 85 cents last year, was 2 cents higher than our estimate and 3 cents ahead
of consensus," Miller wrote in a research note released Tuesday. "This was also above the high end of the company's prior $1.00 to $1.03 guidance range. Consolidated sales of $31.9 billion, up 5.8% versus last year, were roughly $400 million higher than consensus. Overall, operating profit was $20 million higher than Street estimates, primarily driven by the higher sales."
With the strong third quarter, CVS raised and narrowed its earnings guidance for 2013. The company now forecasts adjusted EPS of $3.98 to $4.01 for the full year, compared with the previous projection of $3.90 to $3.96. GAAP diluted EPS from continuing operations is pegged at $3.73 to $3.76 for 2013.
Analysts, on average, estimate CVS' 2013 adjusted EPS at $3.95, with forecasts running from a low of $3.93 to a high of $4.03, according to Thomson Financial.