CVS reports gains from ESI-Walgreens feud

WOONSOCKET, R.I. — CVS Caremark recorded strong financial results for the fourth quarter and full year, and made solid progress across the enterprise during 2011, which set the stage for future growth. However, it was the potential benefit that CVS Caremark is seeing from Walgreens’ battle with Express Scripts that was top of mind for many and was a key question that president and CEO Larry Merlo hit head on at the top of Wednesday morning’s conference call.

“The benefit was not material to our results in the fourth quarter, although it did start to ramp up late in the year. Now since the start of this year, we are seeing a significant number of transfers from Walgreens into CVS. In fact, the amount is a bit more than we anticipated,” Merlo told analysts, referring to Walgreens' withdrawal from the Express Scripts network. “We have spent the last several weeks focused on ensuring that Express Scripts members have uninterrupted, convenient access to pharmacy care and excellent service. The feedback, to date, from our new customers has been excellent.”

Merlo noted that CVS Caremark has made investments in store labor and marketing to enhance it success in capitalizing on the opportunities from the impasse between Walgreens and Express Scripts. Based on the early results, CVS Caremark is now projecting that earnings per share will benefit by about 3 cents per share in the first quarter of 2012, should the situation remain unresolved for the duration of the quarter. This guidance is 1 cent higher than that provided during the company’s recent Analyst Day.

Should the impasse remain unresolved, CVS Caremark will report the estimated impact on a quarter-by-quarter basis throughout the year, Merlo told analysts.

Meanwhile, the 2012 selling season in the PBM segment continues to be on the upswing with a 98% retention rate. Net new business wins now total $7.2 billion, up from the $6.8 billion provided on Analyst Day. The estimate for the number of new Medicare Part D lives for 2012 has increased to 200,000.

In addition to net new business wins, the company expects an additional $5.5 billion in incremental revenue in 2012 associated with the acquisition of the Universal American Medicare Part D business in 2011.

In light of this, the total 2012 impact revenues currently stand at $12.7 billion, which is up from the $12.3 billion projected on Analyst Day.

During the fourth quarter ended Dec. 31, revenues in the pharmacy services segment increased 32.4% to $15.9 billion.

Net revenues for the fourth quarter rose 15.2% to $28.3 billion.

Fourth-quarter net income attributable to the company rose to $1.06 billion, or 81 cents per share, from $1.02 billion, or 75 cents per share, a year earlier.

In the first quarter 2012, adjusted EPS from continuing operations is expected to be between 61 cents and 63 cents. GAAP diluted EPS from continuing operations are expected to be between 55 cents and 57 cents.

CVS Caremark expects to deliver adjusted EPS of $3.18 to $3.28 and GAAP diluted earnings per share from continuing operations of $2.96 to $3.06 per share in 2012.

It also raised its 2012 free cash flow guidance by $300 million to a range of $4.6 billion to $4.9 billion. Cash flow from operations in 2012 is expected to be between $6.2 billion and $6.4 billion.