Despite the impact of a weak flu season and bad weather that curtailed consumer spending, revenue and earnings edged up in the fiscal 2010 first quarter at CVS Caremark Corp.
The retail pharmacy and PBM segments recorded small gains, and the company's adjusted earnings per share topped analysts' average estimate. Same-store sales also rose but were dampened by slow front-end business.
WOONSOCKET, R.I. — Despite the impact of a weak flu season and bad weather that curtailed consumer spending, revenue and earnings edged up in the fiscal 2010 first quarter at CVS Caremark Corp.
The drug store chain and pharmacy benefit manager said Tuesday that total sales for the quarter ended March 31 were $23.8 billion, up 1.6% from $23.4 billion a year earlier.
Revenue in the retail pharmacy unit rose 3.6% to $14 billion in the first quarter, with same-store sales up 2.3% year over year. CVS Caremark noted that same-store sales in the pharmacy and front end were negatively impacted by a slow flu season and severe weather in certain markets.
Pharmacy same-store sales climbed 3.7%, reflecting a negative impact of 290 basis points from recent generic drug introductions and a positive impact of 260 basis points from the continued growth of the Maintenance Choice program, which gives mail-order customers the option of picking up their prescriptions at a CVS pharmacy store.
Front-end same-store results fell 0.7% in the first quarter. Front-of-store business was negatively impacted by the inclusion of stores from the Longs Drugs acquisition and positively impacted from an earlier Easter this year, the company said.
"Despite softer than expected same-store sales growth, the retail segment delivered solid results in the 2010 first quarter, mainly on lower-than-anticipated operating expenses in the quarter," Sanford Bernstein & Co. analyst Helene Wolk said in a research note on CVS Caremark’s first-quarter results.
In the PBM segment, revenue increased 2.6% to $11.8 billion in the first quarter. CVS Caremark attributed the gain primarily to the conversion of some RxAmerica pharmacy network contracts, which resulted in those contracts being accounted for using the gross method. Adjusting the growth rate for the impact of new generics, net revenue would have grown 7.7% in the PBM segment, the company said.
On the earnings side, income from continuing operations attributable to CVS Caremark rose to $773 million, or 56 cents per share, from $743 million, or 51 cents per share, a year ago.
Adjusted earnings from continuing operations attributable to CVS Caremark, which excludes $105 million of intangible asset amortization related to acquisition activity, came in at $836 million, or 60 cents per share, in the 2010 first quarter compared with $808 million, or 55 cents per share, in the prior-year period.
GAAP earnings per diluted share from continuing operations attributable to CVS Caremark for the 2010 first quarter were 55 cents, up from 51 cents a year earlier.
According to Thomson Financial, the average analyst forecast for CVS Caremark’s first-quarter was for earnings per share of 58 cents, with a high estimate of 60 cents and a low of 55 cents.
CVS Caremark said the 2010 first quarter benefited from lower litigation-related costs and fewer integration-related costs associated with the Longs acquisition.
"I’m very pleased with our results in the first quarter. Our operating profit across the enterprise was in line with our expectations, despite the weaker-than-anticipated flu season and severe weather in certain markets that dampened retail revenue growth. That solid performance was driven by continued market share gains and better expense leverage," CVS Caremark chairman and chief executive officer Tom Ryan said in a statement.
"At the same time, we continued to make excellent progress on our new clinical initiatives that should further differentiate CVS Caremark in the PBM marketplace," Ryan added. "I’m also pleased to report that we generated approximately $660 million in free cash during the quarter and remain committed to using our strong cash-generation capabilities to return value to our shareholders. We accelerated our share repurchases during the quarter, which contributed to our achieving earnings per share that were slightly ahead of our expectations."
Looking ahead, CVS Caremark said it raised the low end of its full-year 2010 guidance by 3 cents and now expects adjusted earnings per share from continuing operations to range from $2.77 to $2.84, with the GAAP per-share earnings from continuing operations coming in between $2.58 to $2.65. The average analyst estimate is for full-year earnings of $2.79 per share, Thomson Financial reported.
During the first quarter, CVS Caremark opened 48 new drug stores, closed 10 stores and relocated 53 stores. As of March 31, the company operated 7,063 drug stores.
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