Earnings Preview: CVS Caremark to post 3Q results

NEW YORK - Drugstore operator and pharmacy benefits manager CVS Caremark Corp. is scheduled to report its third-quarter results Thursday morning. The following is a summary of key developments and analyst commentary for the period.

OVERVIEW:

The Woonsocket, R.I., company runs more than 7,000 drugstores, which puts it neck and neck with Walgreen Co. for the most locations in the country. Unlike its drugstore rivals, CVS also runs one of the largest U.S. pharmacy benefits management businesses in Caremark. By bringing the two operations together, the company hopes to save money for health plan members and drive up sales at CVS stores.

The companies try to reduce health care costs for health plan sponsors and members by getting members to use low cost generic drugs or fill longer prescriptions. CVS has acknowledged that Caremark has lagged behind its competitors Medco Health Solutions and Express Scripts. Earlier this year, Express Scripts surpassed Caremark in size after it bought WellPoint's pharmacy benefits management business.

The heavy flu season could bring more customers to CVS pharmacies, although that may be partly canceled out by the recession, which is hurting sales of discretionary items.

BY THE NUMBERS:

CVS is forecasting a profit of 62 cents to 64 cents per share in the third quarter. Analysts polled by Thomson Reuters expect 64 cents per share and $24.61 billion in revenue.

ANALYST TAKE:

SunTrust Robinson Humphrey analyst David Magee expects CVS to earn 64 cents per share in the third quarter, but he lowered his fourth-quarter estimates because he believes sales of Halloween-related items were weak — and he thinks sales of seasonal items will be down during the fourth quarter.

Magee trimmed his 2010 profit estimate, saying PBM revenue will be flat or lower for the year, and said a decline in Medicare Part D enrollment will also hurt CVS' results.

"It seems that Caremark is still having difficulty gaining net share from the larger competitors (at least from judging the comments made by both in recent earnings calls)," he wrote.

WHAT'S AHEAD:

CVS expects a profit of $2.59 to $2.64 per share in 2009. Analysts expect $2.62 per share, on $99.37 billion on revenue.

CEO Tom Ryan has said the company hopes its earnings per share will grow between 13 and 15 percent in 2010. Based on CVS's current outlook, that suggests a profit of $2.93 to $3.04 per share. Analysts expect $3 per share.

STOCK PERFORMANCE:

CVS shares advanced 12.1 percent in the third quarter. They finished at the period at $35.74, and set an annual high of $38.27 in October. The stock closed at $35.43 on Tuesday.

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