CVS Profit Tops Estimates After Gaining Walgreen Customers
CVS Caremark Corp. (CVS), the largest provider of prescription drugs in the U.S., reported second-quarter profit that exceeded analysts’ estimates, helped by customers it gained from Walgreen Co. (WAG)
Net income rose 18 percent to $966 million, or 75 cents a share, from $816 million, or 60 cents, a year earlier, the Woonsocket, Rhode Island-based company said today in a statement. Excluding certain items, profit was 81 cents a share, compared with the 80-cent average estimate of analysts, according to data compiled by Bloomberg.
CVS boosted revenue 16 percent after winning customers from Walgreen, which last year ended a contract to sell prescriptions through employee benefits manager Express Scripts Holding Co. (ESRX) CVS repeated today it expects to retain at least half of those customers in the fourth quarter as Walgreen and Express Scripts prepare to renew their agreement, effective Sept. 15.
“We are not that concerned about Walgreen becoming an overly disruptive force,” John Heinbockel, an analyst at Guggenheim Securities LLC in New York, said today in a note to clients. He rates the shares buy.
CVS estimates it received 6.5 million to 7 million prescriptions in the second quarter from former Walgreen customers who had been affiliated with Express Scripts, Chief Financial Officer Dave Denton said today in an interview. That amounted to more than 3.5 percent of the total of 176 million prescriptions filled by the retailer.
CVS has retained former Walgreen customers by assigning pharmacists to contact them and signing them up for Extra Care discounts, Denton said.
Keeping former Walgreen customers will add about 5 cents to profit in the third and fourth quarters, CVS said. The company raised its per-share profit forecast for 2012 to $3.32 to $3.38 from a previous projection of as much as $3.33. The average of 20 analysts’ estimates compiled by Bloomberg was $3.34.
CVS fell 1.7 percent to $44.12 at the close in New York. The shares have advanced 8.2 percent this year.
Express Scripts manages pharmacy benefit programs for private employers, unions and government health plans. Walgreen’s dispute had revolved around reimbursement rates for 88 million prescriptions, or 10 percent of Walgreen’s pharmacy business. Wal-Mart Stores Inc. (WMT), CVS and Rite Aid Corp. (RAD) had stepped up marketing to grab Walgreen’s prescription customers amid the impasse.
(CVS held an analysts’ call at 8:30 a.m. New York time. Click CVS US <Equity> EVT <GO> for a replay.)
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