CVS posts stronger earnings than expected, raises outlook

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CVS Caremark Corp., the nation’s second-largest drug store chain, reported a 12.4 percent increase in its fourth quarter earnings on Tuesday, due to a boost in retail prescription volume and gains in the pharmacy benefit management business.

The stronger-than-expected earnings come a week after the Rhode Island-based company announced it was eliminating tobacco products from its stores by Oct. 1.

“Our business is strong, and we have near-term offsets to the profitability impact of this change,” Larry Merlo, president and CEO, said in a conference call.

For the quarter ended Dec. 31, net income rose to $1.27 billion, or $1.05 per diluted share, compared with $1.13 billion, or 90 cents per diluted share, in the year-ago period.

Earnings adjusted for acquisition-related expenses rose to $1.12, and exceeded the analysts’ consensus estimate of $1.11 per diluted share, according to Bloomberg’s market data.

The company also raised its outlook for adjusted first-quarter earnings to between $1.03 and $1.06 per share.

Revenues in the quarter rose 4.6 percent to $32.8 billion from $31.4 billion a year ago, with the increase primarily driven by higher drug prices, new products and new clients for its pharmacy benefit management business.

Ross Muken, an analyst for ISI Group LLC, said CVS’s retail prescription drug sales were much higher than expected despite a weak flu season. The company recorded a 4 percent jump in same-store sales in the quarter.

“Overall, we view CVS as a category winner that will be able to manage through the loss in tobacco revenue, and given the strong core business as well as solid free cash flow generation, we expect to see the company benefit from multiple expansion,” Muken wrote in a note.

For the full year, sales increased 3 percent to $126.8 billion from $123.1 billion. Net income climbed 19 percent to $4.6 billion, or $3.75 per diluted share, from $3.9 billion, or $3.02 per diluted share.

Shares rose nearly 3 percent to close Tuesday at $68.77.

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