Stock Market Predictions

CVS Caremark cuts sales view, shares fall

Stock Market Predictions

While the company's pharmacy benefits management business is showing signs of improvement after some trouble in recent years, CVS is still feeling the impact of a weak economy.

Shoppers are opting to buy less expensive goods, including generic drugs. CVS said visits to its stores in the second quarter were flat versus a year earlier.

"If I think about the outlook for the remainder of the year, I personally don't see the economy changing dramatically," Chief Financial Officer Dave Denton said in an interview. "I think the consumer is going to remain cautious."

CVS, like other drugstores and pharmacy benefits managers, is selling more generic drugs. That move crimps revenue because generic drugs are less expensive than their branded counterparts. However, generics are more profitable.

Denton declined to say how much of a lift generics provide, although he called it substantial.

CVS now sees 2011 revenue up 10.5 percent to 11.5 percent, down from a prior forecast of 11 percent to 13 percent.

CVS hopes to benefit from uncertainty as two rival PBMs, Express Scripts Inc (ESRX.O) and Medco Health Solutions Inc (MHS.N), work on a merger and Express Scripts deals with the potential loss of its business with Walgreen Co (WAG.N).

Two large pharmacy groups said on Thursday they sent a letter to U.S. Federal Trade Commission opposing Express Scripts' plan to buy Medco. CVS would not say whether it specifically is lobbying against the proposed deal.

CVS shares were down 3.6 percent at $34.90 in afternoon trading amid a broad market sell-off. The shares of Walgreen, the largest U.S. drugstore chain, fell 0.7 percent to $37.86.

WEAKER DRUGSTORE SALES GROWTH

For its drugstore unit, which operates more than 7,200 stores and accounts for a little more than half of total revenue, CVS now expects sales at stores open at least a year to rise 1.5 percent to 2.5 percent, down from a May forecast of 2.5 percent to 4.5 percent. Net drugstore revenue is now expected to rise 3 percent to 4 percent, down from a May forecast of 4 percent to 6 percent.

Sales at stores open at least a year, or same-store sales, rose 2 percent in the second quarter, but fell short of some estimates. Analysts' consensus forecast was 3.1 percent, according to Bernstein analyst Helene Wolk.

Sales at stores open at least a year across a variety of chains, excluding CVS, rose 4.4 percent in July.

PROFIT TOPS EXPECTATIONS

Adjusted earnings from continuing operations were flat at 65 cents per share, topping analysts' average forecast by a penny, according to Thomson Global Markets I/B/E/S.

Net income attributable to CVS Caremark was $816 million, or 60 cents per share, compared with $821 million, or 60 cents per share, a year earlier.

Revenue rose 10.9 percent to $26.63 billion, just short of the $26.77 billion expected by analysts.

Retail revenue rose 3.6 percent to $14.8 billion.

Revenue in the pharmacy services business jumped 23.2 percent to $14.6 billion, due in part to the addition of a previously announced major contract with Aetna Inc (AET.N).

CVS now expects pharmacy services revenue to rise 23 percent to 24 percent this year, compared with a prior forecast of 23 percent to 26 percent. The unit's operating profit is now expected to fall 7 percent to 9 percent, compared with a prior target of a 5 percent to 9 percent drop.

CVS expects to earn $2.75 to $2.81 per share from continuing operations this year, versus its prior forecast of $2.72 to $2.82. The average forecast of analysts is $2.78.

CVS forecast third-quarter adjusted earnings of 66 cents to 68 cents per share. Analysts were looking for 68 cents.

The company, formed through CVS's 2007 acquisition of Caremark, continues to cooperate with the FTC in its ongoing investigation into the combined company's business practices, Denton said. The probe began in August 2009.

(Reporting by Jessica Wohl; editing by Lisa Von Ahn, Gerald E. McCormick and Andre Grenon)