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CVS Caremark profit rises 25 percent in 3Q

Published: Tuesday, Nov. 5, 2013 4:05 p.m. CDT

CVS Caremark’s third-quarter earnings climbed 25 percent as generic drugs and an improving pharmacy benefits management business helped the drugstore chain beat Wall Street expectations.

The Woonsocket, R.I., company also raised its 2013 earnings forecast when it announced results Tuesday morning.

Drugstore operators and pharmacy benefits managers have benefited for several quarters now from the expiration of patents protecting top-selling brand-name drugs from cheaper generic competition. These generics help profitability because they deliver a wider margin between the cost for the pharmacy to purchase the drugs and the reimbursement it receives for doling it out.

CVS Caremark said more than 81 percent of the prescriptions it dispenses from its retail pharmacies are now generics. That’s up from nearly 80 percent in last year’s quarter.

In contrast, the company’s retail pharmacies had a 73 percent generic dispensing rate in the third quarter of 2010, a year before top-selling drugs like the cholesterol fighter Lipitor lost U.S. patent protection.

Overall, CVS Caremark earned $1.25 billion, or $1.02 per share, in the quarter that ended Sept. 30. That compares with $1.01 billion, or 79 cents per share, last year. Revenue climbed nearly 6 percent to $31.97 billion.

Adjusted earnings totaled $1.05 per share.

Analysts expected $1.02 per share on about $31.52 billion in revenue, according to FactSet.

CVS Caremark Corp. had 7,601 retail drugstores at the end of the quarter. It runs the second-largest U.S. drugstore chain behind Walgreen Co., and its Caremark unit also is one of the nation’s largest pharmacy benefits managers, or PBMs.

PBMs run prescription drug plans for employers, insurers and other customers. Revenue from the PBM side of CVS Caremark’s business climbed nearly 8 percent to $19.5 billion in the quarter.

That business has undergone a restructuring over the past couple of years that is starting to take hold and help profitability, said Gabelli Funds Portfolio Manager Jeff Jonas, who follows CVS Caremark.

In retail pharmacies, revenue from stores open at least a year rose 3.6 percent, as the company filled more prescriptions. That helped counter a drop in revenue from the front-end or rest of the store.

CEO Larry Merlo told analysts the company has seen a pullback in customer spending that started in the spring and has resulted in fewer trips to the drugstore. But the customers who do visit are buying more.

CVS Caremark now expects 2013 adjusted earnings to range between $3.94 and $3.97 per share, not counting a $72-million legal settlement it recorded in the third quarter. That’s up from its forecast in August for earnings of $3.90 to $3.96 per share.

Analysts expect, on average, $3.95 per share.

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