Medco Full-Year and Fourth-Quarter Earnings Results Exceed High End of Company Expectations
Commenting on the company's performance and prospects, Medco Chairman andCEO David B. Snow Jr. said:
Full-Year Financial and Operating Results
For the full year, record net revenues of $44.5 billion increased 4.6percent over 2006, despite a record $2.5 billion reduction in revenue relatingto client and member savings from higher generic dispensing rates. Medco's2007 GAAP diluted EPS of $3.25 on a pre-split and $1.63 post-split basisreflects a strong earnings growth rate of more than 34 percent, and exceedsthe high end of Medco's guidance by $0.04 on a pre-split and $0.02 on a post-split basis. Excluding the amortization of intangible assets that existedwhen Medco became a publicly traded company and excluding the 2006 legalcharge, full-year 2007 diluted EPS was $3.64 pre-split and $1.82 post-split,an increase of 30.9 percent over 2006.
Total prescription volume, adjusting for the difference in days supplybetween mail-order and retail, increased 2.5 percent from 2006 to 748.3million. Mail-order prescription volume increased 6.5 percent from 2006 to94.8 million. Retail prescription volume was 465.0 million, flat with 2006.
Adjusted mail-order prescriptions as a percentage of the total adjustedvolume increased 1.5 percentage points to 37.9 percent, compared to 2006.(Please see Table 5 for the calculation of adjusted prescription volume.)
Gross margin was 6.6 percent, an increase of 90 basis points compared to5.7 percent in 2006, primarily due to higher generic dispensing rates andstronger mail-order prescription volumes. The overall generic dispensing rateincreased 4.5 percentage points to 59.7 percent in 2007 from 55.2 percent in2006.
Total selling, general and administrative (SG&A) expenses for the yearwere $1.1 billion. The year-over-year increase of 17.7 percent, excluding the2006 legal charge, primarily reflects higher labor-related expenses and higherannual incentive bonuses from strong company performance, and the expensesfrom PolyMedica and CCS.
Interest and other (income) expense, net, increased $33.9 million to $99.8million, compared to 2006. The year-over-year growth was primarilyattributable to higher debt levels from the refinancing completed in April2007, as well as the additional debt associated with the acquisitions ofPolyMedica and CCS.
Net income increased 24.9 percent to $912.0 million compared to $730.1million in 2006, excluding the 2006 legal charge. The 2007 weighted averagediluted share count decreased by 42.4 million shares to 560.9 million shareson a post-split basis, reflecting share repurchases made throughout the yearwhich were partially offset by the issuance of employee stock options.
Medco generated cash flows from operations of $1.4 billion, compared to$1.2 billion in 2006, and closed the year with $774 million of cash on itsbalance sheet. Capital expenditures for the year of $178 million reflectmaintenance capital of $150 million, $18 million in software developmentcapital associated with 2008 new client installations, $5 million for the newautomat
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