CVS In-Line, Pharmacy Services Robust

CVS Caremark’s (CVS) fourth quarter earnings came in at 79 cents per share, a cent above the Zacks Consensus Estimate of 78 cents and higher than 70 cents reported in the year-ago period. Revenues increased 7% year-over-year to $25.8 billion primarily due to robust growth of both segments - Pharmacy Services and Retail Pharmacy.

For the full-year 2009, CVS reported earnings per share of $2.74 compared to $2.44 in 2008. Revenues recorded a 12.9% growth at $98.7 billion.

We are pleased to see the robust performance of the pharmacy services segment during the reported quarter. Revenues increased 14.5% to $13.5 billion. Revenue growth would have been higher at 18.3% but for the recent generic introductions.

Pharmacy network claims processed during the quarter decreased 5.6% year-over-year to 151.4 million due to the termination of two large contracts (effective beginning of 2009) and fewer reporting days during the fourth quarter of 2009, partially offset by new client wins and the addition of RxAmerica claims. However, mail choice claims increased 4.4% to 16.7 million due to inclusion of new clients.

The performance of the retail pharmacy business is also quite commendable. Revenues increased 4.5% to $14.5 billion in the fourth quarter of 2009. Despite industry-wide pricing pressure in the pharmacy business, results over the past several quarters have demonstrated strong sales trends with comparable same store sales growing at solid rates.

During the reported quarter, total same-store sales increased 4.9% over the prior-year period. While pharmacy same-store sales rose 7.3%, front-end same-store sales increased 0.3%. Pharmacy same-store sales were negatively impacted by 290 basis points due to recent generic introductions whereas, the Maintenance Choice program had a positive impact of 270 basis points. Generic dispensing rate increased both in the pharmacy services and retail segment by 220 basis points to 68.9% and 260 basis points to 70.6%, respectively.

The company has not provided guidance for 2010. During the third quarter of 2009, CVS disclosed that its PBM segment had lost contracts worth approximately $4.8 billion for 2010. We have an Underperform rating on the stock.