UPDATE 2-CVS Caremark profit up, buys Brazil's Onofre chain

Wed Feb 6, 2013 10:15am EST

* CVS buys Brazil's Drogaria Onofre; terms not disclosed

* Profit of $1.14/share excluding items vs Street view $1.10

* 2013 forecast raised due to late 2012 refinancing

* Shares up 0.3 percent after modest decline in early trading

By Jessica Wohl

Feb 6 (Reuters) - CVS Caremark Corp posted a bigger-than-anticipated rise in fourth-quarter profit on Wednesday, helped by growth at both its pharmacy services business and its CVS drugstore chain, and made its first international push by buying a Brazilian retailer.

CVS Caremark said it bought Drogaria Onofre, Brazil's eighth-largest drugstore chain by sales, last week. The move comes months after larger U.S. drugstore rival Walgreen Co stepped out of the United States for the first time when it bought a 45 percent stake in Europe's Alliance Boots , with the option to purchase the rest of it in about three years.

Drogaria Onofre, with 44 stores in Brazil, is a small international start for CVS, which has more than 7,400 U.S. drugstores.

"It's a toe in the water; it's not financially material to our numbers this year," CVS Chief Executive Officer Larry Merlo told Reuters.

CVS did not disclose terms of the Drogaria Onofre deal. Walgreen paid Alliance Boots $7.02 billion in cash and stock for its stake when that deal closed in August.

CVS also raised its 2013 profit forecast by 2 cents per share due to a debt tender and refinancing executed at the end of 2012.

The company's shares were up 0.3 percent at $51.85 after slipping to $51.40 in early trading.

GROWTH IN BOTH UNITS

CVS Caremark was formed when drugstore chain CVS bought the Caremark pharmacy benefits management business in 2007 in a $27 billion stock deal. The company faced scorn from some industry watchers years ago for its combined model of running drugstores and a PBM.

Lately, though, CVS has been putting more pressure on rivals that operate in a limited part of the sector, such as Express Scripts Holding Co and Walgreen.

CVS said it expects to continue to retain at least 60 percent of the prescriptions it gained during a now-resolved impasse between Walgreen and Express Scripts.

CVS earned $1.13 billion, or 90 cents per share, in the fourth quarter, up from $1.06 billion, or 81 cents per share, a year earlier.

Excluding a loss from early extinguishment of debt, the profit of $1.14 per share topped the analysts' average forecast of $1.10, according to Thomson Reuters I/B/E/S.

About 3 cents per share of the profit stemmed from a lower effective tax rate and from having fewer shares outstanding than originally anticipated, CVS said.

Revenue rose 10.9 percent to $31.39 billion, topping the analysts' average estimate of $31.13 billion.

The quarter was "solid," but the stock is fairly valued at 13 times next year's earnings due to expectations for moderately slower trends in 2013 due to Walgreen's efforts to win back market share and a potentially more competitive PBM selling season, said SunTrust Robinson Humphrey analyst David Magee.

FLU FACTOR

Revenue in the PBM unit, which administers drug benefits for employers and health plans and runs a large mail order pharmacy, rose 17.4 percent to $18.64 billion.

Revenue in the retail division rose 5.1 percent to $16.28 billion, with sales at drugstores open at least a year up 4 percent.

The retail business had a bit of a lift in the fourth quarter, and more in the first quarter, from a flu season that has been significantly stronger than a year earlier, bringing people into stores for everything from flu shots to medicine.

Still, while the first quarter is tracking to the high end of the company's December forecast, it would be premature to adjust the outlook based on the flu season at this point, Merlo said.

The company still expects to earn 77 cents to 80 cents per share before items in the first quarter, it said. Analysts are looking for a profit of 79 cents per share.

CVS said it expects earnings per share of $3.86 to $4.00 this year before special items, up from the December forecast of $3.84 to $3.98. The analysts' current estimate is $3.94.

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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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