CVS Caremark Corp. said Wednesday it struck a large pharmacy benefit management services contract with health insurer Aetna Inc., but shares fell in premarket trading after the pharmacy chain reported weaker earnings and trimmed its profit forecast.
CVS Caremark's net income fell 7 percent in the second quarter because of contracts lost by Caremark. Citing the weak economy and greater costs, the company reduced its profit forecast for the year and said it expects slower revenue growth from stores open at least one year. The company runs 7,109 stores nationwide, about 400 less than Walgreen Co.
In premarket trading, CVS shares fell $1.58, or 5.2 percent, to $29.02. The stock finished at $30.60 Tuesday.
Second-quarter net income fell to $821 million from $886 million. On a per-share basis, profit was unchanged at 60 cents as the company had fewer shares outstanding this quarter. CVS said it earned 65 cents per share if amortization costs and other one-time items are excluded.
According to a survey by Thomson Reuters, analysts expected a profit of 68 cents per share.
The Woonsocket, R.I., company's revenue fell 3 percent to $24 billion from $24.87 billion. Revenue from its drugstore network rose 4 percent to $14.31 billion, but because of contract losses, Caremark's revenue fell 9 percent to $11.84 billion. The figures add up to more than $24 billion because some revenue is counted under both businesses.
Starting on Jan. 1, Caremark lost three major clients to Medco Health Solutions Inc. The deal with Aetna, which was announced Tuesday night, could make a splash and help the company regain some revenue.
Analysts expected $24.13 billion in revenue, on average.
Sales at locations open at least a year grew 2.1 percent. At those stores, pharmacy revenue rose 2.9 percent and sales of other items rose 0.4 percent. Sales at stores open at least one year are considered a key measurement of retailer health because they exclude results at stores that have opened or closed over the past 12 months.
The Caremark Maintenance Choice program boosted prescriptions filled at retail stores, while the milder flu season and earlier Easter holiday hurt results.
Caremark handled 144.3 million prescriptions in the quarter, down 12 percent from a year ago. It made $3.96 per adjusted claim, down from $4.07.
CVS Caremark said the Aetna deal and higher legal expenses will hurt its income this year, and the economy is still hurting sales. It now expects a profit of $2.68 to $2.73 per share this year, down from its previous estimate of $2.77 to $2.84 per share. Analysts expect $2.79 per share.
Sales at stores open at least a year are now expected to rise 2 to 3.5 percent rather than 3.5 to 5.5 percent.
Caremark will administer Aetna's pharmacy benefits management services for 12 years starting Jan. 1. The companies said Caremark will serve about 9.7 million Aetna PBM members and administer $9.5 billion in drug spending per year.
Caremark will handle purchasing, manage inventories, and fill prescriptions for mail order and specialty pharmacies. Aetna will still own its pharmacy benefits management business, but it will transfer 800 employees to Caremark. Another 1,000 employees will remain with Aetna.
The contract will reduce CVS's profit by a penny to 2 cents per share in 2010. After that it will begin adding to the company's net income, contributing 1 to 3 cents per share in 2011, more than 5 cents per share in 2012, and more than double that amount starting in 2013, when the contract is fully implemented.
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