CVS Caremark 1Q profit rises as sales climb

CVS Caremark Corp., the nation's biggest pharmacy chain, said Thursday that first-quarter profit jumped 84 percent, helped by surging sales in the wake of last year's purchase of Caremark.

Profit climbed to $745 million, or 51 cents per share, after preferred dividend payments in the quarter ended March 29, up from $405.4 million, or 43 cents per share, in the prior year, the Woonsocket-based company said. Excluding 4 cents per share for acquisition activities, earnings were 55 cents per share, meeting the expectations of analysts surveyed by Thomson Financial.

Revenue surged 61 percent to $21.3 billion, up from $13.2 billion a year ago, also meeting analysts' estimates.

Shares of CVS rose 9 cents to $40.46 in midday trading after trading as low as $39.02 earlier in the session.

CVS purchased pharmacy benefits management company Caremark in March 2007. Chief Financial Officer David Rickard said revenues were $10.8 billion in that segment for the quarter, an increase of 2.3 percent from a year ago.

Stephanie Hoff, a senior retail analyst with Edward Jones, said the results in that segment came in slightly under what analysts had hoped for. But she said the results were still strong, with both sides of the business delivering higher operating margins.

"On a full year basis, they're still generating a pretty healthy level of growth," she said. "The fact that they have a PBM now has certainly helped buffer a weaker economy."

The company said an Easter that came in March rather than in April this year helped same-store sales to grow 3.9 percent from the prior year, with pharmacy sales rising 3.7 percent and front end sales up 4.3 percent.

Rickard said CVS had seen no evidence of a consumer slowdown.

"Consumers are making tough choices on big ticket purchases, but they aren't yet focused on Snickers bars," he said.

CVS is pulling back on its expansion of MinuteClinics, in-store clinics that offer treatments for a menu of common ailments. CVS operated 510 clinics at the end of the first quarter. The company said earlier this year that it planned to open 200 to 300 new clinics this year, but that is being scaled back to 100 new clinics, and the company may also close some existing clinics, Rickard said.

He said the company remains "very optimistic" about MinuteClinic, but will instead focus on adding and enriching services.

"In any new business you learn as you go, and you adjust priorities accordingly," he said.

For the year, Rickard said CVS expected adjusted earnings per share in the range of $2.44 to $2.50, growth of 18 to 21 percent. The company expects to save about $700 million in 2008 from the merger, much through purchasing, Rickard said.

In March, CVS agreed to pay almost $37 million to nearly two dozen states and the federal government to settle claims that it had billed Medicaid programs for a more expensive antacid.

CVS operates more than 6,300 retail, specialty and mail order pharmacy stores in 44 states and the District of Columbia.

(This version CORRECTS CVS agreed to $37 million agreement in March sted last month)