Express Scripts 4th-quarter profit lower than expected

(Reuters) - - Express Scripts Inc (ESRX.O), which is buying rival pharmacy benefit manager Medco Health Solutions Inc MHS.N for $29 billion, reported lower-than-expected fourth-quarter earnings on Wednesday on higher costs, including an unexpected tax expense.

Express said it would not provide a detailed forecast for 2012 until after completion of the Medco deal, which both companies still expect will close in the first half of the year.

It did reiterate that it expects client retention to be greater than 97 percent, which should give comfort to investors concerned about the impact of Walgreen Co's (WAG.N) withdrawal from the Express pharmacy network.

The company said it still expects 2012 claims growth to be flat to 2 percent.

"What little bit we did get for 2012 looks promising," said Judson Clark, an analyst with Edward Jones.

The client retention projection "in conjunction with sales numbers we saw for January for Walgreen's leads us to think that Express Scripts is handling the situation quite well and won't be affected, at least in the near term," Clark said.

Excluding items, Express earned 82 cents per share for the quarter, which was 3 cents shy of analysts' average expectations, according to Thomson Reuters I/B/E/S.

The company said net income fell to 290.4 million, or 59 per share, from $329.6 million or 62 cents per share a year ago.

Revenue rose about 7 percent to $12.1 billion, topping Wall Street Estimates of $11.6 billion.

Adjusted claims rose 2 percent to 194.9 million, driven by increases in Canada and Medicaid business.

Selling, general and administrative costs for the quarter rose to $269.6 million from $215.5 million, including an unexpected $11 million charge for tax items.

"The (EPS) miss is disappointing," Clark said, but added, "to the extent that they pulled some expenses forward to clear the decks ahead of the Medco merger is fine with us."

He said he would rather see a slight earnings miss along with the higher-than-expected sales than had it been the other way around.

Pharmacy benefit managers, or PBMs, administer drug benefits for employers and health plans and run large mail order pharmacies.

Client use of generic drugs, which carry a higher profit margin than more expensive branded medicines, rose to 74.8 percent from 72.7 percent a year ago.

Express Scripts shares fell to $51.22 in extended trading from a Nasdaq close at $51.63. They are up about 10 percent so far this year.

(Reporting By Bill Berkrot in New York, editing by Matthew Lewis and Carol Bishopric)