2nd UPDATE: CVS Caremark 2Q Net Up 15%, Boosts EPS View
August 04 2009 - 6:53PM
Dow Jones News
CVS Caremark Corp.'s (CVS) chief financial officer, David
Rickard, said he believes the economy may be on its way to an
eventual, albeit slow, recovery.
"The positives at this point in time outweigh the negatives,"
Rickard said in interview with Dow Jones Newswires. "It seems that
we have a reasonably good chance of being on an improvement track
here."
Separately, he wouldn't comment specifically on whether CVS
would be interested in Aetna Inc.'s (AET) pharmacy-benefit
business, which is reportedly being shopped. Some in the industry
say CVS could be one potential suitor.
"I can't speak to an individual target or company that might be
for sale," Rickard said. "But we are a very large company, we do
our homework. You can imagine that anything related to our business
that's for sale, if we have the opportunity, we're going to take a
look at."
His comments come after the hybrid pharmacy-benefit manager and
drugstore retailer reported solid second-quarter earnings Tuesday,
up 15%, as it also boosted its 2009 outlook.
In terms of the economy's impact on CVS's business, Rickard said
the picture was mixed. On one hand, consumers are still
price-sensitive, snapping up branded products on sale. However,
Rickard also noted that there's been a noticeable pickup in CVS's
pharmacy business. Tuesday, CVS reported its pharmacy same-store
sales grew 7.5%, the best showing in two years, Rickard said.
About a quarter of that 7.5% boost came from CVS's Maintenance
Choice program, which allows consumers to pick up 90-day
prescriptions at retail for the same price as they would pay
through the mail, Rickard said.
CVS continues to see more uptake of the program, which now has
270 employer clients, up from 200 in the first quarter.
"It's becoming a more meaningful factor in our business,"
Rickard said in the interview.
CVS's upbeat second-quarter results provided more evidence that
the drugstore chain's $27 billion purchase of pharmacy-benefits
manager Caremark in 2007 may be starting to pay off, which was
until recently a major investor concern.
The company raised its 2009 outlook to $2.59 to $2.64 a share.
In May, an uptick in its PBM business prompted CVS to raise its
target slightly to $2.55 to $2.63.
Earlier this year, CVS renegotiated some pharmacy contracts at
lower price rates and bid aggressively to keep others, which at the
time reignited investors' concerns about the underperforming
Caremark business.
While CVS has seen a better performance by its pharmacy-benefits
business since then, and Chairman and Chief Executive Tom Ryan said
in the company's earnings call he expects additional contract wins
this season, he cautioned that "the remaining opportunities are
probably not sizable enough to offset the losses, since the term
contracts I reviewed totalled about $2 billion."
CVS said its second-quarter profit rose to $886.5 million, or 60
cents a share, from $774.8 million, or 53 cents a share, a year
earlier. Excluding acquisition-related costs, mostly related to
amortization of the CVS Caremark merger, earnings rose to 65 cents
a share from 60 cents.
Revenue rose 18% to $24.9 billion.
Analysts polled by Thomson Reuters were expecting earnings,
excluding items, of 64 cents a share on revenue of $24.41
billion.
CVS shares closed little changed Tuesday, down 2 cents at
$33.98.
-By Kelly Nolan, Dow Jones Newswires; 212-416-2167;
kelly.nolan@dowjones.com