CVS Caremark net revenues increase 1.7% in Q2 2013

CVS Caremark Corporation (NYSE: CVS) today announced operating results for the three months ended June 30, 2013.

Second Quarter Year-over-year Highlights:

• Operating profit increased 15.2% to approximately $2.0 billion
• Adjusted EPS increased 19.6% to $0.97; GAAP diluted EPS from continuing operations increased 20.8% to $0.91
• Retail pharmacy same store prescription volumes increased 1.8%, or 5.0% on a 30-day equivalent basis
• Retail pharmacy same store sales increased 0.8%; total same store sales increased 0.4%

Year-to-date Highlights:

• Generated free cash flow of $1.7 billion
• Cash flow from operations of $2.5 billion

2013 Guidance:

• Narrowed 2013 full-year Adjusted EPS range to $3.90 to $3.96 and GAAP diluted EPS from continuing operations range to $3.65 to $3.71
• Provided third quarter Adjusted EPS guidance of $1.00 to $1.03 and GAAP diluted EPS from continuing operations guidance of $0.94 to $0.97
• Expect full year free cash flow of $4.8 to $5.1 billion and cash flow from operations of $6.4 to $6.6 billion

Revenues

Net revenues for the three months ended June 30, 2013, increased 1.7%, or $534 million, compared to the three months ended June 30, 2012.

Revenues in the Pharmacy Services Segment increased 2.0%, or $377 million, in the three months ended June 30, 2013. The growth was primarily driven by volume increases across all channels and drug cost inflation in our specialty pharmacy business, partially offset by the impact of new generic introductions. Pharmacy network claims processed during the three months ended June 30, 2013, increased 4.1% to 205.9 million, compared to 197.8 million in the prior year period. The increase in pharmacy network claims was primarily due to additional claims activity associated with new clients. Mail choice claims processed during the three months ended June 30, 2013, increased approximately 1.0% to 20.7 million, compared to 20.5 million in the prior year period. The increase in the mail choice claim volume was primarily due to increased claims associated with the continuing adoption of our Maintenance Choice^® offerings.

Revenues in the Retail Pharmacy Segment increased 1.9%, or $293 million, in the three months ended June 30, 2013. Same store sales increased 0.4% when compared to the prior year period, with pharmacy same store sales up 0.8% and front store same store sales down 0.4%. The increase in same store sales was primarily driven by same store prescription volumes, partially offset by new generic drug introductions and the shift of the Easter holiday from April in 2012 to March in 2013. Pharmacy same store prescription volumes rose 1.8% when 90-day prescriptions are counted as one prescription. On a 30-day equivalent basis, same store prescription volumes increased 5.0% in the quarter. Pharmacy same store sales were negatively impacted by approximately 670 basis points due to recent generic introductions. Front store same store sales were negatively impacted by approximately 65 basis points due to the shift of the Easter holiday.

For the three months ended June 30, 2013, the generic dispensing rate increased approximately 270 basis points in our Pharmacy Services Segment, to 80.7%, and approximately 280 basis points in our Retail Pharmacy Segment, to 81.9%, compared to the prior year period.

Income from Continuing Operations Attributable to CVS Caremark

Income from continuing operations attributable to CVS Caremark for the three months ended June 30, 2013, increased 15.9%, or approximately $154 million, to $1.1 billion, compared with $967 million during the three months ended June 30, 2012. The increase in income from continuing operations was primarily driven by the positive impact from new generics, which significantly improved operating profit in both our Pharmacy Services and Retail Pharmacy segments. Adjusted earnings per share from continuing operations attributable to CVS Caremark (Adjusted EPS) for the three months ended June 30, 2013 and 2012, was $0.97 and $0.81, respectively, an increase of 19.6%. Adjusted EPS excludes $124 million and $123 million of intangible asset amortization related to acquisition activity in the three months ended June 30, 2013, and 2012, respectively. GAAP earnings per diluted share from continuing operations attributable to CVS Caremark for the three months ended June 30, 2013, and 2012, was $0.91 and $0.75, respectively, an increase of 20.8%.

President and Chief Executive Officer Larry Merlo said, "Our second quarter results reflect very strong operating performance, with operating profit increasing 15% enterprise-wide, with 32% growth in the PBM and 9% growth in the retail business. As expected, new generic drug introductions continued to be a significant growth driver across the enterprise, resulting in healthy margin expansion and earnings growth. We achieved Adjusted EPS for the quarter at the high end of our guidance range despite a higher-than-anticipated share count."

Mr. Merlo continued, "A primary reason for our higher-than-anticipated share count is that we suspended share repurchases during part of the second quarter while we were engaged in negotiations with the SEC concerning the agreement in principle we announced last week. However, we remain committed to returning significant value to our shareholders through both dividends and share repurchases. We have delivered $1.7 billion in free cash flow year-to-date and we expect to complete our planned $4 billion in share repurchases during 2013."

Real Estate Program

During the three months ended June 30, 2013, the Company opened 23 new retail drugstores, and closed one retail drugstore and one retail specialty pharmacy store. In addition, the Company relocated 24 retail drugstores. As of June 30, 2013, the Company operated 7,617 locations in 45 states, the District of Columbia, Puerto Rico and Brazil. These locations included 7,553 retail drugstores, 18 onsite pharmacies, 30 retail specialty pharmacy stores, 12 specialty mail order pharmacies and four mail service pharmacies.

Guidance

The Company narrowed its earnings guidance range for the full year 2013, primarily to reflect the timing of share repurchases and strong operating results. The Company completed $355 million in share repurchases during the second quarter and $748 million year to date, which is less than originally anticipated. These 2013 guidance estimates assume the completion of approximately $4 billion in previously authorized share repurchases this year. However, with share repurchases back-half weighted as opposed to occurring ratably throughout the year as originally anticipated, this timing shift is estimated to dampen the accretive impact on the Company's EPS in 2013 by as much as 4 cents per share. The Company currently expects to deliver Adjusted EPS of $3.90 to $3.96 and GAAP diluted earnings per share from continuing operations of $3.65 to $3.71 per share in 2013. The Company expects to deliver 2013 free cash flow of $4.8 billion to $5.1 billion, and 2013 cash flow from operations guidance of $6.4 billion to $6.6 billion.

SOURCE CVS Caremark Corporation