February 11, 2014 / 12:30 PM / 4 years ago

CVS sticks to 2014 sales forecast despite tobacco exit

(Reuters) - CVS Caremark Corp (CVS.N) stuck to its 2014 sales forecast on Tuesday, a week after announcing it was giving up its $2 billion a year tobacco business, and said sales at its drugstores are off to a good start this year.

Shares in CVS, which reported a better than expected quarterly profit, rose 2.5 percent to $68.79.

“The ongoing strength in our core retail pharmacy business will help offset the loss from our decision to exit the tobacco category,” Chief Financial Officer Dave Denton told Wall Street analysts on a call.

CVS, which operates the No. 2 U.S. drugstore chain with 7,600 stores, and a major pharmacy benefits management business, reported a higher profit for the quarter ended December 31, as it processed more prescriptions and benefited from the introduction of new generic drugs, helping it offset a drop in store visits by customers.

The company raised its first-quarter profit forecast by 7 cents per share to a range of $1.03 to $1.06, saying sales have been strong this quarter so far.

Revenue in the quarter ended December 31 rose 4.6 percent to $32.83 billion, beating analyst forecasts of $32.67 billion, according to Thomson Reuters I/B/E/S, despite two impediments.

CVS’s pharmacy services unit processed 0.3 percent fewer network claims because of lower membership in a Medicare plan aimed at seniors. The company was hit by sanctions placed on CVS last year by the Centers for Medicare and Medicaid Services over its marketing of the plan.

A CVS pharmacy is seen in New York City July 28, 2010. REUTERS/Mike Segar

The government lifted its sanctions in December, allowing CVS to resume enrolling members last month.

Another challenge was a drop in the number of visits to stores, a problem that has also hit rivals Walgreen Co WAG.N and Rite Aid Corp. (RAD.N) That contributed to a 1.9 percent decline in sales of general merchandise at stores open at least a year last quarter.

    Still, the company filled 3.8 percent more prescriptions and sold more generic drugs which cost less but have larger profit margins, lifting overall same-store sales well above Wall Street expectations.

    CVS earned $1.27 billion from continuing operations, or $1.05 per share, in the fourth quarter, up from $1.13 billion, or 90 cents per share, a year earlier. On an adjusted basis, it reported a profit of $1.12 per share, a penny better than expected.

    CVS announced last week it would stop selling all tobacco products at its drugstores by October, making it the first national drugstore chain in the United States to take cigarettes off the shelves.

    The decision was aimed at bolstering CVS’ position in the healthcare market in recent months. At its analyst day in December, the company said it expected pharmacy benefit manager revenue to rise between 7.25 percent and 8.5 percent in 2014, more than double the rate of retail business growth.

    It stuck to the 2014 forecast from December and still expects adjusted profit of $4.36 to $4.50 per share this year.

    Reporting by Phil Wahba in New York; Editing by Jeffrey Benkoe and Sofina Mirza-Reid

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