VOL. 126 | NO. 24 | Friday, February 4, 2011
CVS Caremark 4Q Profit Falls 2 Percent
NEW YORK (AP) – Drugstore chain and pharmacy benefits manager CVS Caremark Corp. said Thursday that its profit fell 2 percent in the fourth quarter on lower revenue because of client losses and fewer Medicare prescription drug program members.
The company also offered an estimate for adjusted earnings for this year that is below analysts' expectations, saying profits at the Caremark pharmacy benefits management unit will not rebound until 2012.
The Woonsocket, R.I., company said Thursday its net income declined to $1.03 billion, or 75 cents per share, from $1.05 billion, or 74 cents per share. There were fewer shares outstanding in the most recent period.
Revenue fell 4 percent to $24.77 billion from $25.82 billion.
Excluding one-time items the company earned 80 cents per share. Analysts polled by FactSet expected earnings of 79 cents a share on $24.98 billion in revenue.
Quarterly pharmacy services revenue fell 9.7 percent to $12.2 billion, mainly on clients it lost at the beginning of 2010 and a decrease in membership in its Medicare Part D prescription drug program. Meanwhile, revenue from the retail pharmacy unit rose 3 percent to $14.9 billion. About $2.3 billion in revenue was counted in both segments.
CVS Caremark runs 7,182 stores in 44 states, plus Washington, DC and Puerto Rico. It is the second-largest drugstore chain and the third-largest pharmacy benefits manager.
Looking ahead, the company expects adjusted profit from continuing operations between $2.72 and $2.82 per share, while analysts expect $2.89 per share in profit.
Incoming CEO Larry Merlo said profits at the Caremark unit will decrease for the second consecutive year because of streamlining costs and less favorable rates associated with contract renewals. Caremark's operating profit is expected to fall 5 to 9 percent from 2010, with revenue up 23 to 26 percent. Revenue for CVS pharmacy unit is expected to grow 4 to 6 percent
Caremark's operating profit fell 17 percent 2010 because of the losses of several large contracts, including Coventry Health Care Inc., the retirees of automaker Chrysler, and some Medicare Part D business. The company is also making less money per prescription filled, and Merlo said that trend will continue in 2011.
For the full year, the company's net income fell to $3.44 billion, or $2.49 per share, from $3.71 billion, or 42.55 per share, in 2009. Revenue fell to $96.41 billion from $98.73 billion.
Merlo said he is committed to making the CVS-Caremark combination is "financially successful for our shareholders" despite Caremark's struggles over the last few years. CVS and Caremark united in 2007 in a $26.5 billion deal, saying that together, they would be able to use their size to reduce drug costs for health plan members and clients while improving retail sales. But the company has struggled at times, and some investors remain skeptical of the business model. The company also faces continued regulatory scrutiny.
Merlo also said he wants to enhance returns for investors with greater dividends and stock repurchases. Last month the company boosted its quarterly dividend by 43 percent, to 12.5 cents.
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