Medco profit beats, but shares fall on outlook

By Lewis Krauskopf

NEW YORK (Reuters) - Pharmacy benefit manager Medco Health Solutions Inc (MHS.N: Quote, Profile, Research, Stock Buzz) on Tuesday reported higher-than-expected earnings, helped by the use of generic drugs and medicines delivered by mail, but failed to raise its full-year profit outlook, sending shares down 7 percent.

In sending the shares lower, investors shook off claims by some analysts that Medco was likely being conservative in its outlook.

"People were a little disappointed that the company didn't raise their guidance," Jefferies & Co analyst Arthur Henderson said.

Shares of rival Express Scripts Inc (ESRX.O: Quote, Profile, Research, Stock Buzz), which was set to report earnings later on Tuesday, fell 3 percent on Medco's report.

After a strong run in 2007, Medco shares had outperformed the broader markets in 2008 before Tuesday and had climbed some 16 percent in April.

Henderson, who rates Medco stock a "buy", said a new debt offering that is driving up Medco's interest expense for 2008 was creating an earnings drag.

"The fact that they reaffirmed their guidance given that change is a very positive news event," Henderson said. "It means their core business is stronger. We saw that in the numbers."

First-quarter net income fell to $270.2 million, or 50 cents per share, from $274.8 million, or 47 cents per share, a year earlier, when Medco benefited from the short-term availability of a generic version of the Plavix blood-clot treatment.