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CVS Caremark 1Q profit soars 23 percent

Published: Wednesday, May 1, 2013 9:26 a.m. CST

CVS Caremark Corp.'s first-quarter earnings jumped 23 percent and topped analyst expectations, as an influx of generic drugs continued to help the drugstore operator and pharmacy benefits manager's profitability.

The Woonsocket, R.I., company said Wednesday a strong flu season, new clients and Medicare prescription drug plans brought more claims to its pharmacy network. But new generic drugs were the main reason its profit climbed.

Generic drugs help drugstore profitability because they provide a wider margin between the cost for the pharmacy to purchase the drugs and the reimbursement received. But they hurt revenue because they cost less than brand-name products. Drugstores and pharmacy benefits managers have reaped gains from this trend since blockbuster medicines like the cholesterol fighter Lipitor lost patent protection at the end of 2011.

For the first quarter, CVS Caremark earned $956 million, or 77 cents per share. That compares with earnings of $776 million, or 59 cents per share, in last year's quarter. Adjusted earnings totaled 83 cents per share in the most recent quarter, and revenue fell slightly to $30.76 billion.

Analysts expected, on average, earnings of 79 cents per share on about $30.37 billion in revenue, according to FactSet.

With more than 7,400 drugstores, CVS Caremark runs the second-largest chain in the United States after Walgreen Co. Its Caremark unit also is one of the nation's largest pharmacy benefits managers, or PBMs.

Pharmacy benefits managers, or PBMs, run prescription drug plans for employers, insurers and other customers. They process mail-order prescriptions and handle bills for prescriptions filled at retail pharmacies. They use large purchasing power to negotiate lower drug prices and make money by reducing costs for health plan sponsors and members.

CVS Caremark also said Wednesday that it narrowed its forecast for 2013 earnings to a range of $3.89 to $4 per share. That compares to its forecast earlier this year for earnings of $3.86 to $4 per share.

Analysts expect, on average, earnings of $7.92 per share.

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