CVS Caremark announces third quarter revenues, operating profit and net income

CVS Caremark Corporation (NYSE: CVS) today announced record third quarter revenues, operating profit, and net income for the quarter ended September 30, 2009.

Revenues

Net revenues for the third quarter of 2009, increased $3.8 billion to $24.6 billion, up from $20.9 billion during the third quarter of 2008. Net revenues were positively impacted by one more reporting day during the third quarter of 2009 compared to the third quarter of 2008.

Revenues in the pharmacy services segment increased 23.4% to $13.0 billion in the third quarter of 2009. Adjusting the growth rate for the impact of new generics, net revenues would have grown 27.2% in the pharmacy services segment. Pharmacy network claims processed during the third quarter of 2009 increased 9.0% to 146.5 million, compared to 134.4 million in the prior year period. This increase was primarily due to the addition of RxAmerica claims and new client starts. This was offset by a reduction in claims due to the termination of two large health plan clients effective January 1, 2009. Mail choice claims processed during the third quarter of 2009 increased 11.4% to 16.4 million compared to 14.7 million in the prior year period, primarily as a result of net new client starts.

Revenues in the retail pharmacy segment increased 17.9% to $13.6 billion in the third quarter of 2009. Same store sales (sales from stores open more than one year based on a comparable 90-day reporting period) increased 5.7% over the prior year period. Pharmacy same store sales rose 8.0% and were negatively impacted by approximately 380 basis points due to recent generic introductions. Pharmacy same store sales were positively impacted by approximately 250 basis points due to Maintenance Choice™. Front store same store sales increased 0.8%.

The generic dispensing rate in our pharmacy services segment increased 320 basis points to a best-in-class 68.3% in the third quarter. At the same time, the generic dispensing rate in our retail segment increased approximately 210 basis points to 70.1%.

Income from Continuing Operations

Income from continuing operations for the third quarter ended September 30, 2009, increased 25.0% to $1.0 billion, compared with income from continuing operations of $818.8 million during the third quarter of 2008. During the third quarter of 2009, the Company recorded approximately $155.7 million, or $0.11 per diluted share, of previously unrecognized tax benefits. These tax benefits are related to the expiration of various statutes of limitation and settlements with tax authorities.

Adjusted earnings per share from continuing operations, which excludes $108.0 million of intangible asset amortization related to acquisition activity, for the third quarter were $0.76 (including the $0.11 per diluted share income tax benefit), compared with $0.60 in the third quarter of 2008. GAAP earnings per diluted share from continuing operations for the third quarter of 2009 were $0.71 (including the $0.11 per diluted share income tax benefit), compared with $0.56 in the third quarter of 2008.

Income from continuing operations for the nine months ended September 30, 2009, increased 11.1% to $2.7 billion, compared with income from continuing operations of $2.4 billion during the nine months ended September 27, 2008. Adjusted earnings per share from continuing operations, which excludes $322.8 million of intangible asset amortization related to acquisition activity, for the nine months ended September 30, 2009, were $1.96 (including the $0.11 per diluted share income tax benefit), compared with $1.75 in the nine months ended September 27, 2008. GAAP earnings per diluted share from continuing operations for the nine months ended September 30, 2009 were $1.82 (including the $0.11 per diluted share income tax benefit), compared with $1.63 in the nine months ended September 27, 2008.

Tom Ryan, Chairman, President, and Chief Executive Officer, said, “I’m very pleased with our performance across the enterprise this quarter. The quarter was characterized by continued industry-leading performance in our retail business, solid performance in our PBM, and record results from MinuteClinic. Our integrated pharmacy care offerings are contributing to results across the company at a growing pace. We achieved solid revenue growth, healthy earnings growth and significant free cash flow. In addition, we recently completed the Longs integration, and the early customer feedback and improvement in financial results are quite positive.”

Dave Rickard, Executive Vice President, Chief Financial Officer, and Chief Administrative Officer, said, “Given our continued strong performance year to date, we are narrowing our earnings guidance range for 2009. We expect to deliver adjusted earnings per share from continuing operations, excluding the effect of the tax benefit, of $2.61 to $2.64, up from our previous guidance of $2.59 to $2.64.”

Loss from Discontinued Operations

In connection with certain business dispositions completed between 1991 and 1997, the Company retained guarantees on store lease obligations for a number of former subsidiaries, including Linens ‘n Things. The Company’s loss from discontinued operations for the third quarter and nine months ended September 30, 2009 included $1.8 million ($2.9 million, net of a $1.1 million income tax benefit) and $9.5 million ($15.5 million, net of a $6.0 million income tax benefit) of lease-related costs, respectively. The loss from discontinued operations for the third quarter and nine months ended September 27, 2008 included $82.8 million ($134.8 million, net of a $52.0 million income tax benefit) and $131.5 million ($213.6 million, net of an $82.1 million income tax benefit) of lease-related costs, respectively.

Real Estate Program

For the quarter, CVS Caremark opened 65 new retail pharmacy stores, and closed 6 retail pharmacy stores and 1 specialty pharmacy. In addition, the Company relocated 22 retail pharmacy stores. As of September 30, 2009, the Company operated 7,008 retail pharmacy stores, 49 specialty pharmacy stores, 20 specialty mail order pharmacies and 6 mail order pharmacies in 43 states, the District of Columbia and Puerto Rico.

Segment Changes

During the third quarter of 2009, the Company made changes to its reportable segments to reflect changes that were made to the way the Company’s management evaluates the performance of operations, develops strategy and allocates resources. This change involves the reclassification of certain administrative expenses previously recorded within the Pharmacy Services and Retail Pharmacy segments to a new Corporate segment. The Corporate segment consists of costs primarily associated with executive management, corporate relations, legal, compliance, human resources, corporate information technology and finance. This change had no impact on the Company’s consolidated results of operations. As a result of this change, the Company’s business now includes three segments: Pharmacy Services, Retail Pharmacy and Corporate. The Company’s historical segment disclosures have been revised to conform to the current presentation.

During the third quarter of 2009, the Company also made a change to its Pharmacy Services segment as it relates to the Company’s intersegment activities (such as the Maintenance Choice program). This change impacts the gross profit and operating profit lines within the Pharmacy Services segment. Under the Maintenance Choice program, Pharmacy Services customers can elect to pick-up their maintenance prescriptions at Retail Pharmacy segment stores instead of receiving them through the mail. When this occurs, both the Pharmacy Services and Retail Pharmacy segments will now record the revenue, gross profit and operating profit on a standalone basis and corresponding intersegment eliminations are made. This change is reflected in the segment results in the third quarter of 2009 and in the nine months ended September 30, 2009. This change had no impact on the Company’s consolidated results of operations.