CVS Caremark 4Q profit grows 11 percent

CVS Caremark Corp., one of the nation's biggest drugstore operators, said Monday its profit rose 11 percent in the fourth quarter as results improved for its pharmacy benefits management business.

CVS shares rose $1.95, or 6.3 percent, to $33.02. in afternoon trading.

The Woonsocket, R.I., company said it earned $1.05 billion, or 74 cents per share, in the last three months of 2009, up from $949 million, or 65 cents per share, a year earlier. Excluding one-time costs, CVS earned 79 cents per share - a penny ahead of the average analyst estimate, according to Thomson Reuters.

Revenue grew 7 percent to $25.82 billion from $24.14 billion but fell short of Street estimates of $26.22 billion.

The company did not disclose any new contract losses for its Caremark pharmacy benefits management business and sought to reassure analysts that the billions in contracts it has lost were a one-time problem.

In November, the company said Caremark had lost about $4.8 billion in contract revenue for 2010.

Per Lofberg, who became president of Caremark in January, said the losses were caused by "isolated issues which have been corrected," and not by a fundamental problem with Caremark or the company's business plan.

"I don't see any systemic issues that could hold the company back this year," he said. It is early in the selling season for contracts that begin in 2011 and the company did not disclose any signings.

Chief Financial Officer Dave Denton said the company was not doing enough to explain its capabilities as a pharmacy benefits manager and put more emphasis on additional services.

At Caremark, which handles drug benefits for health plan sponsors and members, revenue grew 14.5 percent to $13.49 billion. Revenue from CVS drugstores rose 4.5 percent to $14.46 billion. Some revenue is counted for both businesses when they are broken down individually.

Denton said consumers are still cautious due to the rough economy, and as a result, CVS is selling more store brand products. During the Christmas season he said CVS focused on small gifts and carried fewer seasonal items like wrapping paper or tree trimmings.

In a note to clients, Deutsche Bank analyst Bill Dreher said CVS is gaining market share, and sales at stores open at least a year are still better than rivals like Walgreen and Rite Aid. He said clients like CVS's Maintenance Choice program, which allows plan members to pick up 90-day prescriptions at CVS stores rather than getting them by mail.

During the fourth quarter, the company opened 23 retail pharmacies, relocated eight, and closed six. It also closed two specialty pharmacies, leaving it with 49. CVS now has a total of 7,025 drugstores. That is about 100 fewer stores than rival Walgreen Co. had at the end of January.

For the year, CVS said its profit grew 16 percent to $3.7 billion, or $2.55 per share, from $3.2 billion, or $2.18 per share. Revenue rose 13 percent to $98.73 billion from $87.47 billion.

For CVS, the fourth quarter of 2009 was three days shorter than the fourth quarter of 2008. That's because the company changed the end of its fiscal year to Dec. 31. Its fiscal year used to end on the Saturday closest to Dec. 31.

The company said it expects an adjusted profit of $2.74 to $2.84 per share for 2010, and said revenue will be flat to up as much as 2 percent - or as much as $100.7 billion. Analysts expect $2.78 per share and $100.5 billion.

That includes an adjusted profit of 57 cents to 59 cents per share in the first quarter. Analysts were expecting 62 cents per share.