CVS Caremark Profit Doubles, Helped by Additional Stores
CVS Caremark said on Thursday quarterly profit more than doubled, topping Wall Street's expectations, aided by the addition of Caremark's pharmacy benefits business and new stores.
CVS , one of the largest U.S. drugstore chains, bought Caremark, a pharmacy benefits manager, in March.
Second-quarter profit rose to $723.6 million, or 47 cents per share, from $337.9 million, or 40 cents per share, a year earlier.
CVS had forecast earnings of 44 cents to 47 cents per share, while analysts on average had expected 46 cents, according to Reuters Estimates.
The company estimated that merger and integration costs associated with the Caremark deal cut earnings by a penny per share. It was the first time Caremark's results were included for a full quarter.
Wachovia Securities analyst Matt Perry, who rates the shares "outperform," said the pharmacy benefits manager performance was strong.
Sales Soar
Second-quarter revenue nearly doubled to $20.7 billion and topped analysts' average forecast of $20.57 billion.
Sales at stores open at least a year, or same-store sales, rose 5.7% in the quarter. Pharmacy same-store sales rose 5.7% and same-store sales of general or "front-end" merchandise such as candy and cosmetics rose 5.9%.
"As we had hoped, retail gross margins were very strong, coming in at 29.3%, versus 27.6% last year," Banc of America analyst Scott Mushkin said in a research note. He rates the shares "buy."
CVS also reported a 5.2% rise in July sales at stores open at least a year. For the four weeks ended July 28, pharmacy same-store sales increased 4.8%, while front-end same-store sales rose 6%.
Also on Thursday, rival drugstore chain Walgreen posted a 7.2% rise in July same-store sales.
Walgreen's same-store pharmacy sales increased 8.2%, while same-store sales of front-end merchandise rose 5.5%.
Both CVS and Walgreen said pharmacy same-store sales were hurt by recent generic introductions. While generic drugs sell at lower prices than their branded counterparts, they are typically more profitable for drugstores.
Walgreen also said its comparable pharmacy sales got a boost from there being one fewer Saturday and one additional Tuesday in July versus a year earlier. It says customers fill more prescriptions on weekdays than on weekends.
CVS shares rose to $36.35 in early electronic trading after closing at $35.54 on Wednesday on the New York Stock Exchange.
Shares of CVS trade at about 15.2 times estimated 2008 earnings, while Walgreen trades at a multiple of 18.6, according to Reuters data.
CVS operated 6,180 stores as of July 28, while Walgreen had 5,850 drugstores as of July 31.