* CVS reports earnings a penny higher than Wall Street view
* Revenue gains 13.3 percent to $30.23 billion
* Sees 2012 earnings of $3.38-$3.41/share, Street view $3.37
* Shares slip mid-morning
By Jessica Wohl
Nov 6 CVS Caremark Corp posted a higher
quarterly profit and raised its expectations for the year on
Tuesday as it filled more prescriptions with generic medicines
and its drugstores retained former Walgreen patrons.
The company has been working on keeping customers who
switched to its stores during an impasse between larger
drugstore rival Walgreen Co and pharmacy benefits
manager competitor Express Scripts Holding Co.
Walgreen did not fill Express Scripts prescriptions from the
beginning of the year until mid-September. This gave CVS and
other drugstores the opportunity to woo Walgreen customers who
had to go elsewhere.
CVS expects to retain at least 60 percent of the
prescriptions it gained through the fourth quarter, up from its
prior goal of keeping at least 50 percent, Chief Executive
Officer Larry Merlo said in an interview.
"We continue to view CVS's outlook for retention as
conservative, as we estimate Walgreens has recaptured roughly 25
percent of prescriptions lost during the impasse thus far
through October," said William Blair analyst Mark Miller.
Shares of CVS, which operates the No. 2 U.S. drugstore
chain, gained 2 percent in early trading but reversed course,
slipping 29 cents to $46.34, later in the session.
The results came a day after Express Scripts said analysts'
forecasts for its 2013 results were too aggressive, casting
doubt on how well it is integrating its $29 billion purchase of
Medco Health Solutions Inc. Express Scripts
shares plunged more than 16 percent on Tuesday morning.
CVS said it had earned $1.01 billion, or 79 cents per share
in the third quarter, up from $868 million, or 65 cents per
share, a year earlier.
Excluding intangible asset amortization related to
acquisitions, the profit was 85 cents per share. That topped
analysts' expectations of 84 cents, according to Thomson Reuters
I/B/E/S, and was ahead of the company's forecast of 81 cents to
CVS has increased its marketing to hold onto the new
customers it gained during the earlier part of 2012, and it will
spend more during the fourth quarter to work on retaining them.
The increased marketing spending is already included in the
company's outlook, Merlo said.
CVS expects to earn $1.08 to $1.11 per share on an adjusted
basis in the fourth quarter, which includes a hit of about a
penny per share from Hurricane Sandy. More than 1,100 CVS stores
were closed at the height of the storm last week and 20 remain
closed. Some 15 stores suffered extensive damage and CVS said it
does not know when those will reopen.
CVS is raising its fourth-quarter expectations for its
pharmacies because it has been keeping more Express Scripts
prescriptions, Merlo said. He also cited a rise in flu-related
prescriptions and shots, more visits by patients to doctors over
the last six months and an increase in Medicare Part D
At the same time, CVS's drugstores and pharmacy benefits
units are filling more prescriptions with generic drugs, which
are more profitable than brand-name versions.
Revenue rose 13.3 percent to $30.23 billion, beating the
analysts' average forecast of $30.09 billion.
Revenue in the pharmacy services business jumped 22.2
percent to $18.1 billion, helped by the addition of new clients,
higher drug costs and the growth of its Medicare Part D program
for older people.
Revenue at the CVS drugstore chain rose 5.5 percent to $15.5
billion. Sales at stores open a least a year rose 4.3 percent,
topping the company's August forecast of a 2.5 percent to 3.5
CVS forecast full-year earnings per share of $3.38 to $3.41,
excluding special items. It previously said it had expected
$3.32 to $3.38, and the analysts' average estimate is $3.37.
The company expects same-store sales to rise 2 percent to 3
percent in the fourth quarter and 4.75 percent to 5 percent this
CVS plans to give its forecast for 2013 when it meets with
analysts in New York on Dec. 13.