CVS Caremark 4Q Net Up 3.7% On Higher Sales; Lifts Fiscal Year Outlook

CVS Caremark Corp.'s (CVS) fourth-quarter profit rose 3.7% as pharmacy services and retail revenue each grew, though results were hurt by the increased number of generic products that are hitting the market.

CVS raised its full-year earnings guidance by 3 cents a share, as the company anticipates a greater-than-expected benefit from business being driven away from rival Walgreen Co. (WAG) due to its impasse with pharmacy-benefits manager Express Scripts Inc. (ESRX).

The company's shares ended last year with a 17% gain, exceeding the broader market's growth and far better than the 15% drop for Walgreen, as investors and analysts praise the company's integration of pharmacy-benefits manager Caremark. CVS has touted the success of its MinuteClinic retail health-care centers and observers are banking on the CVS benefiting from the contract expiration between Walgreen and Express Scripts.

In the latest quarter, revenue in the company's pharmacy services segment jumped 32%, again boosted by a contract with Aetna Inc. (AET) as well as an acquisition of a Medicare prescription drug business last year. On the retail side of the pharmacy business, sales were up 4% as same-store sales climbed 2.5%.

CVS reported a profit of $1.06 billion, or 81 cents a share, up from $1.03 billion, or 75 cents a share, a year earlier. Adjusted earnings from continuing operations, which excludes such items as tax benefits, rose to 89 cents a share from 79 cents.

Revenue jumped 15% to $28.32 billion.

In November, CVS predicted earnings of 87 cents to 91 cents a share and total sales growth of 13% to 15%.

Gross margin narrowed to 19.6% from 22.2%.

The company's pharmacy same-store sales were hurt due to recent introductions of generic drugs. While CVS and other drugstore chains are expected to benefit from a wave of generics coming to market, CVS has warned that the initial limited supply of Lipitor and other drugs will keep costs high for several months. Generics have increasingly hit the market in recent years, but 2012 will see the greatest impact yet as more than $30 billion in drugs lose patent protection.

CVS estimated first-quarter adjusted earnings of 61 cents to 63 cents a share, compared with analysts' forecasts of 61 cents, according to Thomson Reuters.

For the full year, CVS now forecasts adjusted per-share earnings from continuing operations of $3.18 to $3.28, up from the December view of $3.15 to $3.25.

Shares closed at $43.08 on Tuesday and were inactive in premarket trading.

-By John Kell, Dow Jones Newswires; 212-416-2480; john.kell@dowjones.com

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