WOONSOCKET, R.I., July 28 /PRNewswire-FirstCall/ -- CVS Caremark Corporation (NYSE: CVS), today announced revenues, operating profit, and net income for the three and six months ended June 30, 2010.
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Revenues
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Net revenues for the three months ended June 30, 2010, decreased $864 million, or 3.5% to $24.0 billion, down from $24.9 billion in the prior year period.
Revenues in the Pharmacy Services segment decreased 9.0% to $11.8 billion in the three months ended June 30, 2010 over the prior year period. Adjusting the growth rate for the impact of new generics, net revenues would have decreased 3.1% in the Pharmacy Services segment. The decrease in net revenues was primarily due to the previously announced termination of a few large client contracts effective January 1, 2010 and the decrease of covered lives under our Medicare Part D program resulting from the 2010 Medicare Part D competitive bidding process. This was partially offset by new client starts effective January 1, 2010.
Revenues in the Retail Pharmacy segment increased 3.7% to $14.3 billion in the three months ended June 30, 2010 and total same store sales increased 2.1% over the prior year period. Pharmacy same store sales increased 2.9% and were positively impacted by approximately 290 basis points due to the continued growth of Maintenance Choice(TM). Pharmacy same store sales were negatively impacted by approximately 180 basis points due to recent generic introductions, and were negatively impacted by the comparison against last year's H1N1 outbreak. Front store same store sales increased 0.4% in the three months ended June 30, 2010, and were negatively impacted by an earlier Easter, the inclusion of stores acquired as part of the Longs acquisition, and by the comparison against last year's H1N1 outbreak.
The generic dispensing rate increased approximately 320 basis points to 71.0% in our Pharmacy Services segment and 310 basis points to 72.7% in our Retail Pharmacy segment, compared to the three months ended June 30, 2009.
Income from continuing operations attributable to CVS Caremark
Income from continuing operations attributable to CVS Caremark for the three months ended June 30, 2010 decreased $67 million, or 7.5% to $822 million, compared to $889 million in the prior year period. Adjusted earnings per share from continuing operations, which excludes $106 million of intangible asset amortization related to acquisition activity, for the three months ended June 30, 2010, were $0.65, including $0.03 per diluted share of accruals in our Retail Pharmacy segment for anticipated legal settlements, compared to $0.65 in the prior year period. GAAP earnings per diluted share from continuing operations attributable to CVS Caremark for the three months ended June 30, 2010 were $0.60, including $0.03 per diluted share of accruals in our Retail Pharmacy segment for anticipated legal settlements, compared to $0.60 in the prior year period.
Income from continuing operations attributable to CVS Caremark for the six months ended June 30, 2010 decreased $38 million, or 2.3% to $1.6 billion, compared to $1.6 billion in the prior year period. Adjusted earnings per share from continuing operations, which excludes $211 million of intangible asset amortization related to acquisition activity, for the six months ended June 30, 2010, were $1.25, compared to $1.20 in the prior year period. GAAP earnings per diluted share from continuing operations attributable to CVS Caremark for the six months ended June 30, 2010 were $1.15, compared to $1.11 in the prior year period.
Tom Ryan, Chairman and Chief Executive Officer, said, "I'm pleased with our results for the second quarter, especially given the challenging retail pharmacy environment. Despite lower-than-expected retail sales growth, we were able to exercise disciplined expense control and to deliver on the bottom line. Our PBM business produced results as expected this quarter, and has made terrific progress in the selling season for 2011 as more clients embrace our ability to provide quality pharmacy care while lowering overall health care costs and improving outcomes. I couldn't be happier with our new contract wins to date, including our long-term agreement with Aetna. We're very pleased to be partnering with Aetna, and believe our integrated approach and multi-channel platform will help Aetna deliver exceptional results for its clients and members."
Financial impact of Aetna agreement
In a separate release late yesterday, the Company also announced a new long-term strategic Pharmacy Benefit Management ("PBM") agreement with Aetna. This groundbreaking collaboration is certainly among the largest and longest-term contracts ever to have been negotiated in the PBM industry. It encompasses approximately $9.5 billion in annual drug spend relating to approximately 9.7 million lives. The Company expects significant long-term financial benefits from this strategic relationship. The agreement is expected to be $0.01 to $0.02 dilutive to adjusted earnings per share in 2010 due to implementation expenses; to be $0.01 to $0.03 accretive to adjusted earnings per share in 2011; to be in excess of $0.05 accretive in 2012; and to generate more than double that level of accretion in 2013 once the contract is fully implemented.
2010 guidance revision
David Denton, Executive Vice President and Chief Financial Officer, stated "The weak economy has had a dampening impact on prescription utilization and consumer behavior across the retail pharmacy sector, which has affected our sales performance. Having said that, we continue to outpace the industry and to gain market share at a healthy pace."
In light of these business trends, the Company is lowering its retail same store sales guidance for the year to a range of 2.0% to 3.5% from a range of 3.5% to 5.5%. The Company is also lowering its guidance for adjusted earnings per share for 2010 to a range of $2.68 to $2.73 from a range of $2.77 to $2.84. The earnings guidance revision results from the reduced retail sales guidance as well as higher-than-expected legal accruals and expenses, and from the initial dilution related to implementation costs for the Aetna contract.
Real estate program
During the three months ended June 30, 2010, the Company opened 50 new retail drugstores, and closed four retail drugstores and two specialty pharmacy stores. In addition, the Company relocated 28 retail drugstores. As of June 30, 2010, the Company operated 7,109 retail drugstores, 45 specialty pharmacy stores, 18 specialty mail order pharmacies and six mail order pharmacies in 44 states, the District of Columbia and Puerto Rico.
Teleconference and webcast
The Company will be holding a conference call today for the investment community at 9:30 am (EDT) to discuss its quarterly results. An audio webcast of the conference call will be broadcast simultaneously for all interested parties through the Investor Relations section of the CVS Caremark website at http://info.cvscaremark.com. This webcast will be archived and available on the website for a one-month period following the conference call.
About the Company
CVS Caremark is the largest pharmacy health care provider in the United States. Through our integrated offerings across the entire spectrum of pharmacy care, we are uniquely positioned to provide greater access to engage plan members in behaviors that improve their health, and to lower overall health care costs for health plans, plan sponsors and their members. CVS Caremark is a market leader in mail order pharmacy, retail pharmacy, specialty pharmacy, and retail clinics, and is a leading provider of Medicare Part D Prescription Drug Plans. As one of the country's largest pharmacy benefits managers (PBMs), we provide access to a network of more than 64,000 pharmacies, including our more than 7,100 CVS/pharmacy® stores that provide unparalleled service and capabilities. Our clinical expertise includes one of the industry's most comprehensive disease management programs. General information about CVS Caremark is available through the Company's website at http://info.cvscaremark.com.
Forward-looking statements
This press release contains certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The Company strongly recommends that you become familiar with the specific risks and uncertainties outlined under the Risk Factors section in our Annual Report on Form 10-K for the year ended December 31, 2009 and under the section entitled "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Quarterly Report on Form 10-Q.
For internal comparisons, management finds it useful to assess year-to-year performance by adjusting diluted earnings per share for amortization, which primarily relates to acquisition activities.
The Company defines adjusted earnings per share as income before income tax provision plus amortization, less adjusted income tax provision, plus net loss attributable to noncontrolling interest divided by the weighted average diluted common shares outstanding.
The following is a reconciliation of income before income tax provision to adjusted earnings per share:
The following reconciliation of estimated income before income tax provision to estimated adjusted earnings per share contains forward-looking information that is subject to risks and uncertainties that could cause actual results to differ materially. The Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The Company strongly recommends that you become familiar with the specific risks and uncertainties outlined under the Risk Factors section in our Annual Report on Form 10-K for the year ended December 31, 2009 and under the section entitled "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Quarterly Report on Form 10-Q. For internal comparisons, management finds it useful to assess year-to-year performance by adjusting diluted earnings per share for amortization, which primarily relates to acquisition activities.
The Company defines free cash flow as net cash provided by operating activities less net additions to property and equipment (i.e., additions to property and equipment plus proceeds from sale-leaseback transactions).
The following is a reconciliation of net cash provided by operating activities to free cash flow:
The Company evaluates its Pharmacy Services and Retail Pharmacy segment performance based on net revenue, gross profit and operating profit before the effect of nonrecurring charges and gains and certain intersegment activities. The Company evaluates the performance of its Corporate segment based on operating expenses before the effect of nonrecurring charges and gains and certain intersegment activities. The following is a reconciliation of the Company's segments to the accompanying consolidated financial statements:
The Company defines EBITDA as earnings before interest, taxes, depreciation and amortization. We define EBITDA per adjusted claim as EBITDA divided by adjusted pharmacy claims. Adjusted pharmacy claims normalize the claims volume statistic for the difference in average days' supply for mail and retail claims. Adjusted pharmacy claims are calculated by multiplying 90-day claims (the majority of total mail claims) by 3 and adding the 30-day claims. EBITDA can be reconciled to operating profit, which we believe to be the most directly comparable GAAP financial measure.
The following is a reconciliation of operating profit to EBITDA for the Pharmacy Services segment:
CVS CAREMARK CORPORATION Condensed Consolidated Statements of Income (Unaudited)
SOURCE CVS Caremark Corporation
