CVS Caremark Quarterly Profit Jumps 18%

Earns CVS
Matt Rourke/AP
By TOM MURPHY

CVS Caremark's first-quarter earnings jumped 18 percent as generic drugs and an acquisition helped the drugstore chain and pharmacy benefits manager weather rough winter storms.

The company runs the nation's second-largest drugstore chain, with many of its nearly 7,700 stores on the East Coast and in the Midwest, areas blasted by snow storms and sub-zero temperatures this past winter. CVS Caremark said that weather, plus a weaker flu season compared to last year, hurt sales at its established stores.

CEO Larry Merlo told analysts during a Friday conference call that the company normally doesn't blame the weather when it explains results, but it was making an exception.

"This quarter, the amount of extreme weather was so abnormal that, quite frankly, it's hard not to talk about it," he said.

CVS Caremark (CVS) also runs one of the biggest pharmacy benefits management operations, and that segment played a large role in its growth during the quarter. Sales from that unit, which runs prescription drug plans for employers and other clients, climbed more than 10 percent to top $20 billion in the quarter. It was helped in part by rising drug prices, as well as the company's acquisition of the drug infusion business Coram.

Growth in generic drug use also helped the company's bottom line, as it has done for several quarters now for CVS and other drugstores. Generics, which are cheaper than brand-name drugs, provide a wider margin between the cost for the pharmacy to purchase the drugs and the reimbursement it receives.

CVS earned $1.13 billion, or 95 cents a share, in the three months that ended March 31. That compares with earnings of $954 million, or 77 cents a share, in last year's quarter. Revenue climbed 6 percent to $32.69 billion.

Adjusted results totaled $1.02 a share. That was 2 cents shy of Wall Street expectations and a penny lower than what the company expected.

But CVS Caremark beat analyst projections for revenue of $32.3 billion in revenue, according to FactSet.

The company also reaffirmed Friday a forecast it first made in December for 2014 adjusted earnings of between $4.36 and $4.50 a share. Analysts expect earnings of $4.47 a share.

CVS Caremark gained national attention in February after vowing to phase out tobacco products from its stores by October. CVS anticipates a $2 billion hit to its revenue because of the decision, but it doesn't expect the move to affect its earnings forecast.

The company, like other drugstore chains, has been raising its focus on health care by adding in-store clinics and seeking to work more with doctors and hospitals to manage patient care. Company leaders told analysts Friday that they don't expect the products they put in tobacco's shelf space to replace the lost revenue from cigarettes and cigars, but they do expect to gain health care business because of the move.

Company shares climbed 29 cents to $73.38 in midday trading, while broader indexes were largely flat.


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