CVS Caremark cuts sales view, shares fall

CVS Caremark cuts sales view, shares fall

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CHICAGO (Global Markets) - CVS Caremark Corp (CVS.N) trimmed its 2011 sales forecast and narrowed its profit target, sending its shares down more than 3 percent on Thursday even though it posted a better-than-expected quarterly profit.

While the company's pharmacy benefits management business is showing signs of improvement after some trouble in recent years, CVS is still feeling the impact of a weak economy.

Shoppers are opting to buy less expensive goods, including generic drugs. CVS said visits to its stores in the second quarter were flat versus a year earlier.

"If I think about the outlook for the remainder of the year, I personally don't see the economy changing dramatically," Chief Financial Officer Dave Denton said in an interview. "I think the consumer is going to remain cautious."

CVS, like other drugstores and pharmacy benefits managers, is selling more generic drugs. That move crimps revenue because generic drugs are less expensive than their branded counterparts. However, generics are more profitable.

Denton declined to say how much of a lift generics provide, although he called it substantial.

CVS now sees 2011 revenue up 10.5 percent to 11.5 percent, down from a prior forecast of 11 percent to 13 percent.

CVS hopes to benefit from uncertainty as two rival PBMs, Express Scripts Inc (ESRX.O) and Medco Health Solutions Inc (MHS.N), work on a merger and Express Scripts deals with the potential loss of its business with Walgreen Co (WAG.N).

Two large pharmacy groups said on Thursday they sent a letter to U.S. Federal Trade Commission opposing Express Scripts' plan to buy Medco. CVS would not say whether it specifically is lobbying against the proposed deal.

CVS shares were down 3.6 percent at $34.90 in afternoon trading amid a broad market sell-off. The shares of Walgreen, the largest U.S. drugstore chain, fell 0.7 percent to $37.86.

WEAKER DRUGSTORE SALES GROWTH

For its drugstore unit, which operates more than 7,200 stores and accounts for a little more than half of total revenue, CVS now expects sales at stores open at least a year to rise 1.5 percent to 2.5 percent, down from a May forecast of 2.5 percent to 4.5 percent. Net drugstore revenue is now expected to rise 3 percent to 4 percent, down from a May forecast of 4 percent to 6 percent.

Sales at stores open at least a year, or same-store sales, rose 2 percent in the second quarter, but fell short of some estimates. Analysts' consensus forecast was 3.1 percent, according to Bernstein analyst Helene Wolk.

Sales at stores open at least a year across a variety of chains, excluding CVS, rose 4.4 percent in July.

PROFIT TOPS EXPECTATIONS

Adjusted earnings from continuing operations were flat at 65 cents per share, topping analysts' average forecast by a penny, according to Thomson Global Markets I/B/E/S.

Net income attributable to CVS Caremark was $816 million, or 60 cents per share, compared with $821 million, or 60 cents per share, a year earlier.

Revenue rose 10.9 percent to $26.63 billion, just short of the $26.77 billion expected by analysts.

Retail revenue rose 3.6 percent to $14.8 billion.

Revenue in the pharmacy services business jumped 23.2 percent to $14.6 billion, due in part to the addition of a previously announced major contract with Aetna Inc (AET.N).

CVS now expects pharmacy services revenue to rise 23 percent to 24 percent this year, compared with a prior forecast of 23 percent to 26 percent. The unit's operating profit is now expected to fall 7 percent to 9 percent, compared with a prior target of a 5 percent to 9 percent drop.

CVS expects to earn $2.75 to $2.81 per share from continuing operations this year, versus its prior forecast of $2.72 to $2.82. The average forecast of analysts is $2.78.

CVS forecast third-quarter adjusted earnings of 66 cents to 68 cents per share. Analysts were looking for 68 cents.

The company, formed through CVS's 2007 acquisition of Caremark, continues to cooperate with the FTC in its ongoing investigation into the combined company's business practices, Denton said. The probe began in August 2009.

(Reporting by Jessica Wohl; editing by Lisa Von Ahn, Gerald E. McCormick and Andre Grenon)

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Walgreen sales hit by exit from Express Scripts

Walgreen sales hit by exit from Express Scripts

Stock Market Predictions

(Global Markets) - Walgreen Co (WAG.N) is being hit by its withdrawal from the Express Scripts Inc (ESRX.O) pharmacy network and by a much-weaker-than-expected flu season, leading it to temper its expectations for the number of prescriptions it will fill this year.

Walgreen said on Friday that it now expects prescriptions filled in fiscal 2012 to be around the low end of its previous forecast of 97 percent to 99 percent of the prescriptions it filled last year.

Walgreen said January sales at stores open at least a year, or same-store sales, fell 4.6 percent as it lost business following its decision to walk away from Express Scripts after failing to come to terms on a new contract with the pharmacy benefits manager.

Analysts, on average, anticipated that sales would fall only 2.7 percent, according to Thomson Global Markets data.

Walgreen, the largest U.S. drugstore chain, stopped filling prescriptions for patients in the Express Scripts network on December 31, 2011. Chains such as CVS Caremark Corp (CVS.N) and Rite Aid Corp (RAD.N) have been advertising to woo customers who used to fill their prescriptions at Walgreen.

CVS, in particular, appears to be "the clear winner" due to the fallout between Walgreen and Express Scripts, said Jefferies & Company analyst Scott Mushkin, who has a "buy" rating on CVS and a "hold" rating on Walgreen.

CVS stands to benefit both in its stores and in its Caremark pharmacy benefits management business, analysts say.

Pharmacy same-store sales fell 7.9 percent in January, Walgreen said. Express Scripts prescriptions accounted for 12.4 percent of Walgreen prescriptions in January 2011.

"While it's no surprise (Express Scripts) had a large impact, underlying trends were also disappointing," said Credit Suisse analyst Edward Kelly.

He said that Walgreen's tone in its statement also suggested that the two parties are not close to reaching a resolution.

Walgreen is moving ahead with relationships with large and small employers, health systems, physician groups and other pharmacy benefits managers.

"With January now behind us, we are moving forward with relationships with large and small employers, health systems, physician groups and other PBMs who value Walgreen's ability to help lower overall healthcare costs," Kermit Crawford, Walgreen's president of pharmacy, health and wellness services and solutions, said in a statement.

With such relationships and once it is past the weak flu season, Walgreen expects the number of comparable prescriptions filled relative to January's result to improve in the coming months, he added.

Walgreen has administered 5.5 million flu shots so far this season, down from 6.3 million at the same time last year.

Shares of Walgreen, which operates 7,830 U.S. drugstores, were down 18 cents to $33.35 in morning trading on the New York Stock Exchange.

(Reporting by Jessica Wohl in Chicago; editing by John Wallace and Mark Porter)

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Express Scripts shares jump as forecast reassures

Express Scripts shares jump as forecast reassures

Stock Market Predictions

(Global Markets) - Shares of Express Scripts Inc (ESRX.O) jumped 10.5 percent as the U.S. pharmacy benefit manager's profit outlook for 2011 was less dire than some investors had feared and the company offered positive financial forecasts through 2014.

Wall Street had been bracing for a lower profit outlook from the company, so the forecast removed some uncertainty hanging over the stock. The long-term projections helped reassure investors about growth prospects.

Express Scripts cut its projected 2011 profit range by about 6 percent, citing higher spending and fewer prescriptions being filled because of consumer worry about the weak economy.

It said spending would be higher due to a contract dispute with drugstore chain Walgreen Co (WAG.N) and in anticipation of integrating its $29 billion purchase of rival Medco Health Solutions Inc (MHS.N).

Express Scripts last month warned investors of potentially weak prescription volume, causing some analysts to lower their profit forecasts and investors to send the stock down.

"A lot of people had been expecting it was going to happen and a lot of them were saying, 'I don't want to own it ahead of that because it could pull back,'" Jefferies & Co analyst Brian Tanquilut said. "But now we're seeing that it's not as bad ... This sets the bottom for the stock."

Separately on Thursday, Express Scripts revealed fiscal forecasts through 2014 in a securities filing on the Medco merger.

The projections, which the company said were prepared a month before the Medco deal was announced and pertained to it as a stand-alone company, offered earnings-per-share estimates that eclipse the average estimates of analysts, according to Thomson Global Markets I/B/E/S.

"Even with a more moderated script view suggested since then, we see this disclosure as providing comforting clarification around future growth," Barclays Capital analyst Lawrence Marsh said in a research note.

Marsh said the annual growth in EBITDA (earnings before interest, taxes, depreciation and amortization) for 2012 to 2014 amounted to about 12 percent, above his expectations of average growth of 8 percent.

The merger filing also revealed that Medco approached Express Scripts about a transaction in early June, more than a month before they announced the deal, and that the companies talked as early as 2006 about a potential combination.

Express Scripts shares were up $3.77 to $39.71 in afternoon trading on Nasdaq. Medco shares were up 6.9 percent to $48.79 on the New York Stock Exchange.

STAGNANT ECONOMY

Express Scripts' lower 2011 profit forecast is the latest sign that Americans are cutting back on healthcare spending to save money because of uncertainty in the economy.

Chief Financial Officer Jeff Hall told an investor conference last month that Express Scripts generally sees prescriptions increase 3 percent to 5 percent in an average year, but there has been virtually no growth over the past three years.

Hall also said the economy had worsened over June and July and the company did not see it improving.

Since Hall's comments, Express Scripts shares had fallen about 16 percent through Wednesday, compared with a 4 percent drop for the S&P 500 index .SPX.

Express Scripts said in a statement on Thursday, "The company now believes that it is more likely than not that the continuing stagnant economic conditions will negatively impact claims volumes to a greater extent than it had anticipated."

It expects prescription claims will fall short of its previous forecast for 750 million to 780 million this year.

Overall, Express Scripts forecast 2011 earnings of $2.95 to $3.05 per share, down from its prior view of $3.15 to $3.25.

The company noted that its revised range still amounts to annual earnings per share growth of between 18 percent and 22 percent.

Since June, Express Scripts has been locked in a contract dispute with Walgreen, which plans to stop filling prescriptions for Express Scripts members starting in January. Express Scripts said it was spending to help clients as they transfer away from Walgreen pharmacies.

The company said it was speeding up spending on some projects to create more capacity in advance of the Medco deal.

"A lot of those costs are one-time," said Gabelli & Co analyst Jeff Jonas. "To the extent that you are pulling forward spending from 2012 into 2011, that means 2012 will be even better."

In cutting its forecast, Express Scripts also pointed to greater competition in the marketplace "resulting in increased client demands and expectations."

5 YEARS IN THE MAKING

The filing revealed that a deal that has been simmering for five years came to a boil in June when Medco Chief Executive David Snow telephoned his counterpart at Express Scripts, George Paz.

Representatives from the two companies held preliminary discussions in 2006 and went as far as to enter into a confidentiality agreement in November of that year, although the agreement expired in 2009, the filing said.

The two sides stayed in touch over the ensuing years, according to the filing, but the preliminary talks did not proceed further.

Last February, Medco's board decided to review alternatives to being a stand-alone company, the filing said.

During 2011, Medco suffered significant contracts losses that raised concerns about its prospects. After reviewing an array of options, the filing said, a committee of the Medco board called the "Medco M&A committee" concluded the best alternative was a merger with Express Scripts and recommended contacting its rival.

Two days later, Snow made the initial call to Paz. The deal was announced on July 21.

(Reporting by Lewis Krauskopf in New York; Editing by Derek Caney and John Wallace)

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