CHICAGO (Reuters) - CVS Caremark Corp <CVS.N> said recent problems at its pharmacy benefits management unit have been corrected and it posted a slightly better-than-expected rise in quarterly profit as its drugstore bested its rivals, driving the company's shares up as much as 8.8 percent.
CVS also said 2010 earnings could top analysts' views.
Just three months ago, CVS shocked investors when it said the pharmacy benefits business, which administers prescription drug benefits for employers and health plans and operates a large mail-order pharmacy, lost out on about $4.8 billion of business heading into 2010, leading to the departure of the unit's president.
During Monday's quarterly call the new PBM president explained that problems were isolated and have since been fixed. Per Lofberg said he has not seen any problems with client satisfaction during his first month on the job.
"The PBM seems to have stabilized a little bit already," said Jefferies & Co analyst Scott Mushkin.
"That's the key, can Per stabilize the PBM? It's early and we're just coming off of an absolute disaster, so I don't want to overstate it. But it's a good first impression," said Mushkin, who has a "buy" rating on CVS shares.
Investors appeared to be unconcerned that total sales missed analysts' projections, as sales at drugstores open at least a year far outpaced recent results at larger U.S. drugstore chain Walgreen Co <WAG.N>.
CVS Chief Financial Officer Dave Denton told Reuters consumers were still "very cautious" with regard to their spending.
CVS's shares rose 6 percent to $32.95 in afternoon trading after rising as high as $33.81.
PROFIT TOPS VIEW BY A PENNY
"I feel like we're very well positioned both from a retail perspective ... as well as the PBM side," Denton said.
CVS forecast 2010 adjusted earnings per share from continuing operations of $2.74 to $2.84. Analysts expected a profit of $2.78, according to Thomson Reuters I/B/E/S. [ID:nWEN9860]
The company said 2010 operating profit should fall 10 percent to 12 percent at the PBM and rise 13 percent to 16 percent in the retail segment.
CVS expects first-quarter earnings to rise 57 cents to 59 cents per share from 55 cents, missing analysts' target of 62 cents. CVS said it faces tougher comparisons in the first half of 2010 and does not expect the Longs stores it acquired in 2008 to become more profitable until later in the year.
Fourth-quarter profit rose to $1.05 billion, or 74 cents per share, from $949 million, or 65 cents per share. Adjusted earnings per share rose to 79 cents from 70 cents, topping analysts' average forecast of 78 cents.
Revenue climbed 7 percent to $25.8 billion, but fell short of analysts' expectations of $26.22 billion.
Pharmacy services revenue jumped 14.5 percent to $13.5 billion.
The PBM business, which grew when CVS acquired Caremark Rx Inc in March 2007, processed 5.6 percent fewer pharmacy network claims in the latest fourth quarter, as it lost two big clients and had three fewer reporting days in the quarter. The addition of new clients, and more clients using its mail choice service, helped offset those declines.
At the drugstores, sales rose 4.5 percent to $14.5 billion, while sales at drugstores open at least a year rose 4.9 percent. Pharmacy same-store sales rose 7.3 percent, while same-store sales of general merchandise gained just 0.3 percent.
Last week, Walgreen posted its second consecutive monthly drop in same-store sales, with January falling 1.1 percent [ID:nN03148337]. Smaller player Rite Aid Corp's <RAD.N> same-store sales have fallen for eight months in a row.
Denton said CVS had no new comments about the U.S. Federal Trade Commission's investigation into some of its business practices, which followed its acquisition of Caremark.
A study issued last week by labor consortium Change to Win, which pushed for the FTC to examine the merger, said CVS charges the U.S. government more for some generic drugs than participants in its retail generic discount program pay.
Denton, who called the report "a lot of rhetoric," said the government is pleased with CVS's pricing and service and has not heard from them since the study was released.