CVS’s 3Q benefits from generics, specialty drugs

WOONSOCKET, R.I. — CVS Health Corp. reported better-than-expected third quarter earnings Tuesday as the pharmacy chain and medication plan provider benefited from increased use of generic drugs and specialty pharmaceuticals.

CVS Health runs the nation’s second-largest drugstore chain with more than 7,700 locations and one of the largest pharmacy benefits management, or PBM, businesses.

The company’s net income fell to $948 million, or 81 cents per share, from $1.25 billion, or $1.02 per share in the prior year period. Earnings, adjusted to extinguish debt and for amortization costs, were $1.15 per share.

The results exceeded Wall Street expectations, with the average estimate of analysts surveyed by Zacks Investment Research at $1.14 per share.

Revenue rose to $35.02 billion in the period, also surpassing Street forecasts. Analysts expected $34.65 billion, according to Zacks.

Revenue from its PBM side increased 16 percent, and operating profit from that segment increased 7.3 percent, helped by new business and specialty drug growth.

Specialty drugs are very expensive, usually injected, drugs for complex chronic health conditions — a category that is driving overall spending on medications. CVS has started a new program called Specialty Connect that allows customers with these prescriptions to either pick them up at pharmacies or through the mail.

CVS said revenue from stores open at least a year increased 3 percent and was negatively impacted by the loss of tobacco sales

CVS Health gained national attention in February after it promised to phase out sales of tobacco products from its stores by October. The company, like other drugstore chains, has been raising its focus on health care by adding in-store clinics and seeking to work more with doctors and hospitals to manage patient care. Company leaders said tobacco has no place in a health care setting like that.

They estimated that the move will cost the company about $2 billion in annual revenue, counting tobacco sales and lost revenue from other products smokers buy when they purchase tobacco.

The company narrowed its 2014 adjusted earnings guidance to between $4.47 and $4.50, from its previous forecast of $4.43 to $4.51, excluding the $0.27 per share loss on early extinguishment of debt.

Analysts expect, on average, earnings of $4.49 per share, according to FactSet.

For the current quarter ending in December, CVS Caremark expects its per-share earnings to range from $1.18 to $1.21. Analysts surveyed by Zacks had forecast adjusted earnings per share of $1.21.

CVS shares have increased 20 percent since the beginning of the year, while the Standard & Poor’s 500 index has risen 9 percent. The stock has risen 38 percent in the last 12 months.

THE ASSOCIATED PRESS