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CVS fourth-quarter earnings climb 6.1 percent on higher revenues

by Zongwei Li
Feb 06, 2013


Zongwei Li/MEDILL

CVS posted strong-than-expected fourth-quarter earnings with growth in both pharmacy services business and drugstore chain.

CVS Caremark Corp. reported stronger-than-expected adjusted fourth-quarter earnings Wednesday, helped by strong revenues in both its pharmacy services and retail segments.

In the latest quarter, net income of the Woonsocket, R.I.-based company increased 6.1 percent to $1.13 billion, or 90 cents per diluted share, from $1.06 billion, or 81 cents per diluted share, a year earlier. Excluding one-time elements, including early payment of debt, CVS would have earned $1.14 per share in the fourth quarter, above the $1.10 average estimate by analysts. The company’s quarterly revenue surged 10.9 percent to $31.39 billion from $28.32 billion a year earlier.

“Both the PBM (pharmacy benefit management) and retail segments turned in strong performances at the high end of our expectations,” said Larry Merlo, chief executive officer of CVS.

“And we also realized below-the-line benefits in the quarter from a lower effective tax rate and fewer shares than we originally anticipated, resulting in EPS exceeding the high end of our guidance by approximately three cents per share,” Merlo added.

In the latest quarter, revenues in CVS’s retail pharmacy segment climbed 5.1 percent to $16.28 billion, due to a boost in sales of flu-related products and expansion in store locations. CVS opened 35 new stores in the quarter, resulting in a total of 131 new stores last year, with 2.1 percent growth in retail square footage, according to Wednesday’s conference call.

As for the pharmacy services segment, CVS enjoyed a revenue increase of 17.4 percent to $18.64 billion. Contributing to the increase were new clients and product launches, along with drug price inflation.

CVS bought the Caremark pharmacy benefits management in 2007, adding pharmacy services sector into its portfolio. Analysts viewed that segment as a key momentum in the company’s future performance.

“Now that Caremark is fully back on track, it is likely that CVS shares will continue to experience multiple expansion since the PBM is the segment with the better growth and FCF (free cash flow) dynamics,” said John Heinbockel, analyst with Guggenheim Securities LLC., in a research note.

Looking ahead, CVS expects to earn $3.86 to $4.00 per share this year, roughly in line with the Wall Street estimate of $3.94 per share.

For the full year, CVS posted earnings of $3.88 billion, or $3.03 per share, up 12 percent from $3.46 billion, or $2.57 per share, a year earlier. Sales increased to $123.13 billion, up 15 percent from $107.10 billion a year earlier.

In New York Stock Exchange trading Wednesday, CVS shares slipped 48 cents, or less than one percent, to close at $51.24.