UPDATE 2-CVS sticks to 2014 sales forecast despite tobacco exit

Tue Feb 11, 2014 12:27pm EST

By Phil Wahba
    Feb 11 (Reuters) - CVS Caremark Corp stuck to its
2014 sales forecast on Tuesday, a week after announcing it was
giving up its $2 billion a year tobacco business, and said sales
at its drugstores are off to a good start this year.
    Shares in CVS, which reported a better than expected
quarterly profit, rose 2.5 percent to $68.79.
    "The ongoing strength in our core retail pharmacy business
will help offset the loss from our decision to exit the tobacco
category," Chief Financial Officer Dave Denton told Wall Street
analysts on a call.
    CVS, which operates the No. 2 U.S. drugstore chain with
7,600 stores, and a major pharmacy benefits management business,
reported a higher profit for the quarter ended Dec. 31, as it
processed more prescriptions and benefited from the introduction
of new generic drugs, helping it offset a drop in store visits
by customers.
    The company raised its first-quarter profit forecast by 7
cents per share to a range of $1.03 to $1.06, saying sales have
been strong this quarter so far.
    Revenue in the quarter ended Dec. 31 rose 4.6 percent to
$32.83 billion, beating analyst forecasts of $32.67 billion,
according to Thomson Reuters I/B/E/S, despite two impediments.
    CVS's pharmacy services unit processed 0.3 percent fewer
network claims because of lower membership in a Medicare plan
aimed at seniors. The company was hit by sanctions placed on CVS
last year by the Centers for Medicare and Medicaid Services over
its marketing of the plan.  
    The government lifted its sanctions in December, allowing
CVS to resume enrolling members last month.
    Another challenge was a drop in the number of visits to
stores, a problem that has also hit rivals Walgreen Co 
and Rite Aid Corp. That contributed to a 1.9 percent
decline in sales of general merchandise at stores open at least
a year last quarter.
    Still, the company filled 3.8 percent more prescriptions and
sold more generic drugs which cost less but have larger profit
margins, lifting overall same-store sales well above Wall Street
expectations.
    CVS earned $1.27 billion from continuing operations, or
$1.05 per share, in the fourth quarter, up from $1.13 billion,
or 90 cents per share, a year earlier. On an adjusted basis, it
reported a profit of $1.12 per share, a penny better than
expected.
    CVS announced last week it would stop selling all tobacco
products at its drugstores by October, making it the first
national drugstore chain in the United States to take cigarettes
off the shelves.  
    The decision was aimed at bolstering CVS' position in the
healthcare market in recent months. At its analyst day in
December, the company said it expected pharmacy benefit manager
revenue to rise between 7.25 percent and 8.5 percent in 2014,
more than double the rate of retail business growth.
    It stuck to the 2014 forecast from December and still
expects adjusted profit of $4.36 to $4.50 per share this year.
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