* Q2 adjusted EPS 65 cents vs Wall Street view 64 cents
* Confident on year, narrows FY EPS view to $2.75-$2.81
* Shares fall nearly 3.6 percent
(Adds CFO comments, retail sales data; updates stock decline)
By Jessica Wohl
CHICAGO, Aug 4 CVS Caremark Corp (CVS.N)
trimmed its 2011 sales forecast and narrowed its profit target,
sending its shares down more than 3 percent on Thursday even
though it posted a better-than-expected quarterly profit.
While the company's pharmacy benefits management business
is showing signs of improvement after some trouble in recent
years, CVS is still feeling the impact of a weak economy.
Shoppers are opting to buy less expensive goods, including
generic drugs. CVS said visits to its stores in the second
quarter were flat versus a year earlier.
"If I think about the outlook for the remainder of the
year, I personally don't see the economy changing
dramatically," Chief Financial Officer Dave Denton said in an
interview. "I think the consumer is going to remain cautious."
CVS, like other drugstores and pharmacy benefits managers,
is selling more generic drugs. That move crimps revenue because
generic drugs are less expensive than their branded
counterparts. However, generics are more profitable.
Denton declined to say how much of a lift generics provide,
although he called it substantial.
CVS now sees 2011 revenue up 10.5 percent to 11.5 percent,
down from a prior forecast of 11 percent to 13 percent.
CVS hopes to benefit from uncertainty as two rival PBMs,
Express Scripts Inc (ESRX.O) and Medco Health Solutions Inc
MHS.N, work on a merger and Express Scripts deals with the
potential loss of its business with Walgreen Co WAG.N.
Two large pharmacy groups said on Thursday they sent a
letter to U.S. Federal Trade Commission opposing Express
Scripts' plan to buy Medco. CVS would not say whether it
specifically is lobbying against the proposed deal.
CVS shares were down 3.6 percent at $34.90 in afternoon
trading amid a broad market sell-off. The shares of Walgreen,
the largest U.S. drugstore chain, fell 0.7 percent to $37.86.
WEAKER DRUGSTORE SALES GROWTH
For its drugstore unit, which operates more than 7,200
stores and accounts for a little more than half of total
revenue, CVS now expects sales at stores open at least a year
to rise 1.5 percent to 2.5 percent, down from a May forecast of
2.5 percent to 4.5 percent. Net drugstore revenue is now
expected to rise 3 percent to 4 percent, down from a May
forecast of 4 percent to 6 percent.
Sales at stores open at least a year, or same-store sales,
rose 2 percent in the second quarter, but fell short of some
estimates. Analysts' consensus forecast was 3.1 percent,
according to Bernstein analyst Helene Wolk.
Sales at stores open at least a year across a variety of
chains, excluding CVS, rose 4.4 percent in July.
PROFIT TOPS EXPECTATIONS
Adjusted earnings from continuing operations were flat at
65 cents per share, topping analysts' average forecast by a
penny, according to Thomson Reuters I/B/E/S.
Net income attributable to CVS Caremark was $816 million,
or 60 cents per share, compared with $821 million, or 60 cents
per share, a year earlier.
Revenue rose 10.9 percent to $26.63 billion, just short of
the $26.77 billion expected by analysts.
Retail revenue rose 3.6 percent to $14.8 billion.
Revenue in the pharmacy services business jumped 23.2
percent to $14.6 billion, due in part to the addition of a
previously announced major contract with Aetna Inc (AET.N).
CVS now expects pharmacy services revenue to rise 23
percent to 24 percent this year, compared with a prior forecast
of 23 percent to 26 percent. The unit's operating profit is now
expected to fall 7 percent to 9 percent, compared with a prior
target of a 5 percent to 9 percent drop.
CVS expects to earn $2.75 to $2.81 per share from
continuing operations this year, versus its prior forecast of
$2.72 to $2.82. The average forecast of analysts is $2.78.
CVS forecast third-quarter adjusted earnings of 66 cents to
68 cents per share. Analysts were looking for 68 cents.
The company, formed through CVS's 2007 acquisition of
Caremark, continues to cooperate with the FTC in its ongoing
investigation into the combined company's business practices,
Denton said. The probe began in August 2009.
(Reporting by Jessica Wohl; editing by Lisa Von Ahn, Gerald
E. McCormick and Andre Grenon)