UPDATE 1-CVS profit misses as general merchandise sales fall

Fri May 2, 2014 9:20am EDT

(Adds details on PBM contracts, analyst, CEO comments, stock price)

By Phil Wahba

May 2 (Reuters) - CVS Caremark Corp reported a weaker-than-expected quarterly profit on Friday on a sharp drop in sales of general merchandise, which the drugstore chain blamed on a harsh winter, milder flu season and aggressive competition.

Sales of merchandise sold at the front of its stores open at least a year, such as toothpaste and snacks, fell 3.8 percent in the first quarter, a sharper drop than those at rivals Walgreen Co and Rite Aid Corp.

"We continued to see an increase in both the breadth and depth of promotional activity out in the marketplace," CVS Chief Executive Officer Larry Merlo told analysts on a conference call.

CVS shares were down 1.4 percent to $72.05 in premarket trading as the company reported what analysts at Guggenheim Partners said was its first earnings miss in "at least three years."

CVS, which operates the No. 2 U.S. drugstore chain and a major pharmacy benefits management business, earned $1.13 billion, or 95 cents per share, in the quarter, up from $954 million, or 77 cents per share, a year earlier.

Adjusted profit, which factors in acquisitions and other times, was $1.02 per share, 2 cents below analysts' estimates, according to Thomson Reuters I/B/E/S.

Total revenue rose 6.3 percent to $32.69 billion.

CVS Caremark stuck to its 2014 profit forecast, still expecting an adjusted profit of $4.36 to $4.50 per share.

Revenue in its pharmacy services segment rose 10.3 percent to $20.2 billion. The company noted in slides posted on its website that more potential customers are seeking requests for proposals, suggesting the business was getting more competitive. (Reporting by Phil Wahba in New York; Editing by Lisa Von Ahn and Jeffrey Benkoe)

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