CVS Caremark Beats by a Penny – Analyst Blog

CVS Caremark’s (CVS) third-quarter earnings came in at 65 cents, a cent above the Zacks Consensus Estimate and higher than 60 cents reported in the year ago period. Revenues increased 18.2% year over year to $24.6 billion primarily due to robust growth of both segments - pharmacy services and retail pharmacy. However, gross margin declined to 20.3% in the reported quarter compared to 21.1% in the year ago period.

We are pleased to see the robust performance of the pharmacy services segment during the reported quarter. Revenues increased 23.4% to $13 billion. Revenue growth would have been higher at 27.2% but for the recent generic introductions. While pharmacy netwok claims processed during the quarter increased 9% year over year to 146.5 million due to the addition of RxAmerica claims and new client wins, offset partially by a reduction in claims due to the termination of two large contracts (effective beginning of 2009), mail choice claims increased 11.4% to 16.4 million.

The performance of the retail pharmacy business is also quite commendable. Revenues increased 17.9% to $13.6 billion in the third quarter. Despite industry wide pricing pressure in the pharmacy business, results over the past several quarters have demonstrated strong sales trends with comparable same-store sales growing at solid rates.

Same-store sales increased 5.7% over the prior-year period. While pharmacy same store sales rose 8%, front end same store sales increased 0.8%. Pharmacy same store sales were negatively impacted by 380 basis points due to recent generic introductions whereas Maintenance Choice program had a positive impact of 250 basis points. Generic dispensing rate increased both in the pharmacy services and retail segment by 320 basis points to 68.3% and 210 basis points to 70.1%, respectively.

Based on the strong third quarter performance, CVS Caremark increased the lower end of its guidance for 2009. The company now expects earnings per share in the range of $2.61-$2.64, up from the previous guidance of $2.59-$2.64.