CVS profit nearly doubles with Caremark

PROVIDENCE, R.I. - CVS Caremark Corp., the nation's largest pharmacy chain, said Thursday that fourth-quarter profits nearly doubled as it cut costs following its acquisition of Caremark and benefited from new generic drugs.

For the period ended Dec. 29, earnings after preferred dividends jumped to $811.2 million, or 55 cents per share, compared with $413.8 million, or 49 cents per share, in the previous year. For the year, CVS earned $2.62 billion, up from $1.36 billion in 2006.

Excluding an income tax provision, profit rose to $860.3 million, or 58 cents per share, from $442.9 million, or 52 cents per share. Yearly profit was $2.84 billion, or $2.07 per share.

Analysts polled by Thomson Financial expected net income of 55 cents per share for the quarter and $1.92 for the year.

CVS shares rose to $38.91, up $2.89, or 8 percent.

Woonsocket-based CVS Corp. acquired pharmacy benefits manager Caremark Rx Inc. in March, creating one of the largest players in the prescription drug industry. CVS Caremark said acquisition-related costs took a penny per share off its quarterly profit.

"We are a different company today than we were a year ago," Tom Ryan, CVS president and chief executive, told analysts during a conference call. "We're a pharmacy health care service company."

He said the company had solid revenue growth and improved gross margins in both the retail and pharmacy benefits management segments in the quarter and expected the same for 2008.

Sales leaped 82 percent to $21.94 billion from $12.07 billion a year ago. Retail pharmacy sales were $11.64 billion, while pharmacy services revenue was $11.61 billion.

Sales in stores open more than a year were up 3.4 percent from the previous year.

For 2008, the company expects earnings growth of 27 percent to 31 percent, in a range of $2.43 to $2.50 adjusted earnings per share, said David Rickard, the company's chief financial officer. He said revenue was expected to grow 13 percent to 16 percent across the company, driven in large part by about $700 million in savings from the buyout, mostly from purchasing costs.

Lisa Gill, an analyst with J.P. Morgan, said the company's higher stock price was being driven by projected growth in operating profit and analysts' belief that the company was being conservative in its estimates of new generic drugs coming onto the market.

CVS also said it expected to generate more than $3 billion in cash flow, and Gill said since it did not announce plans to spend it, the company could use the money for share repurchases.

The company is in the midst of a $5 billion share repurchase program, which Ryan said should be complete by the end of the first quarter.

CVS operates 6,245 retail pharmacy stores and 56 specialty pharmacy stores, as well as mail order pharmacies in 44 states and the District of Columbia.

CVS plans to open 175 to 185 new stores in 2008, as well as 200 to 300 new MinuteClinics, in-store health clinics that treat common ailments. It already operates 462 of the clinics in 25 states.