CVS Caremark shows first-quarter profit rise

By The Associated Press

May 06, 2008 12:11 am

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PROVIDENCE — CVS Caremark Corp., the nation's biggest pharmacy chain, has seen its first-quarter profits jump by 84 percent, helped by surging sales in the wake of last year's purchase of Caremark.

According to corporate reports filed last week, 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.

CVS, whose 6,000-plus stores and pharmacies in 44 states include two Gloucester stores, on Main Street and Thatcher Road, 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."

Lisa Gill, an analyst with J.P. Morgan, said it was also good news that the company announced it had signed $3 billion worth of new business in its pharmacy benefits management segment for 2009.

"This is really a 2009 story for all the business they're signing," she said.

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.

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