CVS Caremark Corp.'s third-quarter net income climbed 7 percent as a long-term contract and an acquisition gave it more pharmacy network claims to process.
The Woonsocket, R.I., drugstore operator on Thursday also raised the low end of its full-year profit forecast, saying the Caremark pharmacy benefits business performed better than the company expected during the quarter. Competitor Walgreen Co. also said its sales are being hurt by a contract dispute with pharmacy benefits manager Express Scripts Inc., and CVS could be in position to pick up some of Walgreen's sales.
Shares of CVS Caremark rose $1.52, or 4.3 percent, to close Thursday at $37.29.
CVS Caremark reported net income of $868 million, or 65 cents per share, for the three months that ended Sept. 30. That compares with $809 million, or 59 cents per share, a year earlier.
Adjusted earnings, which exclude amortization tied to acquisitions, were 70 cents per share, above analyst expectations for 67 cents, according to FactSet.
Revenue grew 12 percent to $26.67 billion. Analysts expected $26.76 billion.
CVS Caremark runs the second-largest chain of drugstores in the U.S., after Walgreen. CVS had 7,304 stores at the end of the quarter, up from 7,152 a year ago. Its Caremark business is one of the largest pharmacy benefits managers, businesses that handle prescription drug benefits. Pharmacy benefits managers are paid to reduce costs for health plan sponsors and members. CVS Caremark handles hundreds of millions of prescriptions every year and uses its size to negotiate lower prices with manufacturers.
Revenue from pharmacy services, including Caremark, climbed 26 percent helped by a new long-term contract with health insurer Aetna Inc. and the acquisition of Universal American Corp.'s Medicare prescription drug business. Pharmacy network claims processed during the quarter rose 40 percent to 179.2 million.
Net income had slumped at Caremark in recent years with the loss of some contracts, but the company expects profit in the division to grow in 2012. On Jan. 1, Caremark began administering Aetna's retail pharmacy network and managing purchasing and prescription filling for Aetna's mail-order and specialty pharmacy businesses. The 12-year contract is still ramping up, but it is expected to bring CVS Caremark $8.2 billion in revenue in 2011.
CVS also expanded its Medicare Part D business by acquiring the Universal American unit at the end of April for $1.25 billion. It said that deal will bring $5.5 billion in additional revenue in 2012.
Total revenue from drugstores rose 4 percent to $14.69 billion. Revenue at stores open at least a year, a key measure of retailers' health, grew 2.3 percent.
Walgreen reported its October sales on Thursday. Its sales at stores open at least a year grew 2.5 percent, but Walgreen said that comparison would have risen 3.1 percent if it were not losing clients because of a dispute with Express Scripts. Walgreen and Express Scripts are to stop doing business together at the end of 2011. Walgreen says Express Scripts is not paying it enough to fill prescriptions, and Express Scripts says Walgreen wants too much.
CVS said it's not being affected by the fallout, but that could change when the break-up is final. BMO Capital Markets analyst Dave Shove said uncertainty over the Scripts dispute and Express Scripts' impending purchase of Medco Health Solution Inc. seem to be helping CVS.
"CVS appears to be benefiting from some marketplace disruption as well as attention to the execution, both in the front of the store and the PBM business. The company may just be in the right place at the right time," Shove said.
During the third quarter Express Scripts and Medco, two of Caremark's largest competitors, agreed to combine. If regulators approve that deal, the resulting company would be about twice the size of Caremark.
CVS Caremark now expects 2011 adjusted earnings of $2.77 to $2.81 per share, compared with its previous forecast of $2.75 to $2.81 per share. Analysts had expected $2.76.
Tom Murphy contributed to this story from Indianapolis.
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