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The Honolulu Advertiser
Posted on: Tuesday, February 9, 2010

CVS reports profits up 11% in 4th quarter

By Marley Seaman
Associated Press

NEW YORK CVS Caremark Corp., one of the nation's biggest drugstore operators, said yesterday its profit rose 11 percent in the fourth quarter as results improved for its pharmacy benefits management business.

CVS shares rose $1.95, or 6.3 percent, to $33.02 in afternoon trading.

The Woonsocket, R.I., company said it earned $1.05 billion, or 74 cents per share, in the last three months of 2009, up from $949 million, or 65 cents per share, a year earlier. Excluding one-time costs, CVS earned 79 cents per share a penny ahead of the average analyst estimate, according to Thomson Reuters.

Revenue grew 7 percent to $25.82 billion from $24.14 billion but fell short of Wall Street estimates of $26.22 billion.

CVS, which acquired Longs Drugs Stores in 2008, said it completed its integration of Longs last year and expects the acquisition to "drive improved profitability" in 2010 and the years ahead.

CVS maintained the Longs name in Hawai'i while converting Mainland stores to the CVS brand.

The company did not disclose any new contract losses for its Caremark pharmacy benefits management business and sought to reassure analysts that the billions in lost contracts were a one-time problem.

In November, the company said Caremark had lost about $4.8 billion in contract revenue for 2010.

Per Lofberg, who became president of Caremark in January, said the losses were caused by "isolated issues which have been corrected," and not by a fundamental problem with Caremark or the company's business plan.

"I don't see any systemic issues that could hold the company back this year," he said. It is early in the selling season for contracts that begin in 2011 and the company did not disclose any signings.

Chief financial officer Dave Denton said the company was not doing enough to explain its capabilities as a pharmacy benefits manager and put more emphasis on additional services.

At Caremark, which handles drug benefits for health plan sponsors and members, revenue grew 14.5 percent to $13.49 billion. Revenue from CVS drugstores rose 4.5 percent to $14.46 billion. Some revenue is counted for both businesses when they are broken down individually.

Denton said consumers are still cautious because of the rough economy, and as a result, CVS is selling more store brand products. During the Christmas season, he said, CVS focused on small gifts and carried fewer seasonal items such as wrapping paper or tree trimmings.

In a note to clients, Deutsche Bank analyst Bill Dreher said CVS is gaining market share, and sales at stores open at least a year are still better than at rivals like Walgreen and Rite Aid. He said clients do like CVS' Maintenance Choice program, which allows plan members to pick up 90-day prescriptions at CVS stores rather than get them by mail.

During the fourth quarter, the company opened 23 retail pharmacies, relocated eight and closed six. It also closed two specialty pharmacies, leaving it with 49. CVS now has a total of 7,025 drugstores. That is about 100 fewer stores than rival Walgreen Co. had at the end of January.

For the year, CVS said, its profit grew 16 percent to $3.7 billion, or $2.55 per share, from $3.2 billion, or $2.18 per share. Revenue rose 13 percent to $98.73 billion from $87.47 billion.

The company said it expects an adjusted profit of $2.74 to $2.84 per share for 2010, and for revenue to be flat to up as much as 2 percent or as much as $100.7 billion. Analysts expect $2.78 per share and $100.5 billion.