CVS Caremark profit, sales jump

By Jessica Wohl

CHICAGO (Reuters) - CVS Caremark Corp. (CVS.N) said on Thursday quarterly profit more than doubled, topping expectations, aided by the addition of Caremark's pharmacy benefits business and new stores.

Shares of CVS, which also stood by its profit forecast for the year, rose more than 4 percent before paring some of those gains in midday trading.

CVS, one of the largest U.S. drugstore chains, bought Caremark, a pharmacy benefits manager, in March. The second quarter marked the first time that Caremark's results were included for a full quarterly period.

"Simply put, both businesses are performing well providing evidence of the strategic wisdom of the merger and the earnings power of the company," said Goldman Sachs analyst John Heinbockel, who has a "buy" rating on the shares.

During a conference call, the company said it is feeling some pressure from economic factors such as higher gasoline prices in its stores, but not to the degree other types of retailers have.

Profit rose to $723.6 million, or 47 cents per share, from $337.9 million, or 40 cents per share, a year earlier. The company estimated that merger and integration costs associated with the Caremark deal cut earnings by a penny per share.

CVS had forecast earnings of 44 cents to 47 cents per share, while analysts on average had expected 46 cents, according to Reuters Estimates.

SALES SOAR

Second-quarter revenue nearly doubled to $20.7 billion and topped analysts' average forecast of $20.57 billion.

Sales at stores open at least a year, or same-store sales, rose 5.7 percent in the quarter. Pharmacy same-store sales rose 5.7 percent and same-store sales of general or "front-end" merchandise such as candy and cosmetics rose 5.9 percent.

"As we had hoped, retail gross margins were very strong, coming in at 29.3 percent, versus 27.6 percent last year," Banc of America analyst Scott Mushkin said in a research note. He rates the shares "buy."

CVS also reported a 5.2 percent rise in July sales at stores open at least a year. Rival Walgreen Co. (WAG.N) posted a 7.2 percent rise in July same-store sales while such sales rose 1.6 percent at Rite Aid Corp. (RAD.N).

All three chains said pharmacy same-store sales were hurt by recent generic introductions. While generic drugs sell at lower prices than their branded counterparts, they are typically more profitable for drugstores.

CVS still expects to earn $1.86 per share to $1.91 per share this year, Chief Financial Officer David Rickard said during the call. That view now reflects items such as a hit from an increase in amortization, which should be offset by the impact of the timing of Medicaid cuts, the strong second quarter and higher synergy savings from the Caremark deal.

Analysts, on average, expect a profit of $1.89 per share.