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Aetna deal lifts CVS as profits weaken

Associated Press / July 29, 2010

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NEW YORK — CVS Caremark Corp. yesterday reported weaker quarterly earnings and lowered its profit forecast, but its shares rose 3 percent to $31.54 as investors approved of a large pharmacy benefit management services contract struck with Aetna.

CVS Caremark will administer Aetna’s retail pharmacy store network, manage customer service, handle prescription drug purchasing, manage inventories, and fill prescriptions for Aetna’s mail-order and specialty pharmacy operations. The 12-year contract will ramp up over several years and bring in revenue of $8.2 billion next year.

The contract offsets other major deals lost in the past year. That lost business pushed second-quarter net income down 7 percent, to $821 million. On a per-share basis, profit was unchanged at 60 cents, as the company had fewer shares outstanding this quarter. CVS earned 65 cents per share if amortization costs and other one-time items are excluded. According to a survey by Thomson Reuters, analysts expected a profit of 68 cents per share.

The Woonsocket, R.I., company’s revenue fell 3 percent, to $24 billion. Revenue from its drugstore network rose 4 percent, to $14.31 billion, but because of the contract losses, Caremark’s revenue fell 9 percent, to $11.84 billion. The figures add up to more than $24 billion because some revenue is counted under both businesses. Analysts expected $24.13 billion in revenue, on average.

Revenue at locations open at least a year grew 2.1 percent.

CVS forecast a weak third quarter and cut profit and revenue expectations for the year, citing higher litigation costs, the weak economy, and start-up costs connected to the Aetna deal. It now expects a profit of $2.68 to $2.73 per share this year, down from $2.77 to $2.84 per share.