Strong Rx business drives 3Q gains at CVS Caremark

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Sharp growth in pharmacy business fueled hefty revenue and earnings gains for CVS Caremark Corp. in the third quarter.

Retail pharmacy sales climbed nearly 18% in the quarter, while pharmacy services sales surged more than 23%. The company also beat Wall Street's profit forecast.

"Our integrated pharmacy care offerings are contributing to results across the company at a growing pace," stated chairman and CEO Tom Ryan.

WOONSOCKET, R.I. — Sharp growth in pharmacy business fueled hefty revenue and earnings gains for CVS Caremark Corp. in the third quarter.

The drug store chain and pharmacy benefit manager said Thursday that net sales for the quarter ended September 30 surged 18.1% to $24.6 billion from $20.9 billion a year earlier. The company noted that revenue was positively impacted by an extra reporting day during the 2009 quarter.

Retail pharmacy sales jumped 17.9% year over year to $13.6 billion in the third quarter, with same-store sales up 5.7%. Pharmacy same-store sales rose 8% and were negatively impacted by 380 basis points due to recent generic introductions, yet that was partially offset by a 250-basis-point positive impact from the Maintenance Choice pharmacy program, the company said. Front-end same-store sales inched up 0.8%.

In the pharmacy services segment, revenue swelled 23.4% to $13 billion in the third quarter. Adjusting the growth rate for the impact of new generics, sales would have risen 27.2% in the segment, CVS Caremark reported.

On the earnings side, CVS Caremark topped Wall Street’s expectations. The company posted net income of $1.02 billion, or 71 cents per diluted share, in the third quarter, up from $736 million, or 50 cents per diluted share, a year earlier.

Third-quarter income from continuing operations, meanwhile, climbed 25% to $1 billion from $818.8 million in the prior-year period. During the third quarter of 2009, the company recorded $155.7 million, or 11 cents per diluted share, of previously unrecognized tax benefits.

Adjusted earnings per share from continuing operations, which excludes $108 million of intangible asset amortization related to acquisition activity, for the third quarter came in at 76 cents (including the 11 cents per diluted share income tax benefit), compared with 60 cents a year earlier. GAAP earnings per diluted share from continuing operations for the 2009 quarter were 71 cents (including the income tax benefit), compared with 56 cents a year ago.

The average analyst estimate for CVS Caremark’s 2009 third quarter was 64 cents per share, according to Thomson Financial.

"The quarter was characterized by continued industry-leading performance in our retail business, solid performance in our PBM, and record results from MinuteClinic," Tom Ryan, chairman and chief executive officer of CVS Caremark, said in a statement.

"Our integrated pharmacy care offerings are contributing to results across the company at a growing pace. We achieved solid revenue growth, healthy earnings growth and significant free cash flow," Ryan explained. "In addition, we recently completed the Longs [Drug Stores] integration, and the early customer feedback and improvement in financial results are quite positive."

CVS Caremark also tweaked its earnings guidance for the full year.

"Given our continued strong performance year-to-date, we are narrowing our earnings guidance range for 2009," stated Dave Rickard, executive vice president and chief financial officer. "We expect to deliver adjusted earnings per share from continuing operations, excluding the effect of the tax benefit, of $2.61 to $2.64, up from our previous guidance of $2.59 to $2.64."

That outlook is in line with the average analyst forecast of $2.62 per share, which reflects a range of $2.60 to $2.65, according to Thomson Financial.

During the third quarter, CVS Caremark opened 65 new retail pharmacy stores, closed six retail pharmacy stores and one specialty pharmacy, and relocated 22 retail pharmacy stores. The company said that as of September 30, it operated 7,008 retail pharmacy stores, 49 specialty pharmacy stores, 20 specialty mail-order pharmacies and six mail-order pharmacies.

Also on Thursday, CVS Caremark said its board of directors has authorized a new share repurchase program for up to $2 billion of the company’s outstanding common stock. The program, which expires at the end of 2011, allows the company to effect the buybacks via open market, privately negotiated and/or accelerated share repurchase transactions.

"We’re very pleased with the board’s approval of this new share repurchase program and believe it reflects well-placed confidence in the future growth of CVS Caremark’s business and an ongoing commitment to increase shareholder value," Rickard commented.


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