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Carly Helfand/MEDILL

CVS Caremark is primed to benefit from a recent split between Walgreens and Express Scripts, a pharmacy benefits manager.

After posting fourth-quarter growth, CVS set to benefit from Walgreens split in 2012

by Carly Helfand
Feb 08, 2012

Record revenues did not yield record income growth for CVS Caremark Corp., which posted a modest increase in fourth-quarter earnings Wednesday. But the company appears set to benefit from a recent rift between local competitor Walgreen Co. and Express Scripts Inc. CVS upped its profit forecast for the coming year.

In the quarter ended Dec. 31, net income for CVS Caremark, the largest pharmacy health-care provider in the U.S., inched up to $1.06 billion, or 81 cents per diluted share, a 3.7 percent increase from $1.03 billion, or 75 cents per diluted share, in the year-ago period.

Earnings per share were adjusted to 89 cents to exclude the write-off of goodwill related to an acquisition. That number matched the expectations of analysts polled by Bloomberg LP.

Revenues reached a record high of $28.32 billion, climbing 15.2 percent from $24.59 billion in the year-ago period.

“The earnings and the sales numbers were pretty much in line and are showing that the business is really starting to accelerate and really firing on all cylinders,” said Jeff Jonas, an analyst at Gabelli & Co. Inc.

For all of 2011, CVS’s net income was stagnant, totaling $3.46 billion – up less than 1 percent from the $3.43 billion mark reached in 2010.

Annual revenue jumped to $107.10 billion, a 12 percent increase from 2010’s $95.78 billion.

“2011 was a year of great accomplishment for CVS Caremark,” CEO Larry Merlo said in a release. “We executed successfully on a number of key initiatives across the company and reported solid financial results, delivering on our promises. Our retail business continued to post strong top- and bottom-line results, and our [pharmacy benefit manager] enjoyed strong revenue growth, another very successful selling season, and great progress on several important initiatives.”

CVS Caremark also changed its earnings guidance for the first quarter of 2012, raising it by 3 cents per share in anticipation of inheriting prescription transfers from Walgreen. At the end of 2011, Walgreen allowed its contract with Express Scripts, a pharmacy benefits manager, to expire, leaving CVS Caremark in a position to benefit.

“As we close the chapter on 2011, we are optimistic that we can deliver even better results in 2012,” Merlo said. “We have the right people, the right assets, and the right plans in place to continue to reinvent pharmacy and benefit from the changing health care landscape. Our retail business continues to execute successfully, while our [pharmacy benefit manager] is poised to return to healthy operating profit growth in 2012.”

On Friday, Walgreen announced that its pharmacy sales in stores older than one year, or same-store sales, fell 7.9 percent in January. CVS executives already expect that Walgreen’s loss of Express Scripts’ business is contributing to its top-line.

CVS Caremark’s issued first-quarter guidance predicting same-store sales to rise by 6.5 to 7.5 percent, according to analyst Jonas.

“They said it’s maybe going a little bit ahead of plan, and ‘We’re trying to do our best to serve these customers and keep them when they settle,’” Jonas said.

CVS Caremark shares rose 50 cents Wednesday to close at $43.58.