CVS Profit Up After Fourth Quarter Prescription Volume Increases

Less than a week after shocking the country and announcing that it will no longer sell tobacco products, pharmacy giant CVS Caremark CVS +2.38% reported fourth quarter profit and revenue growth that came in above what Wall Street was expecting, largely due to an increase in prescription volume.

CVS reported $32.8 billion in fourth quarter revenue, up 4.6% over the same quarter in 2012 and edging above Street estimates of $32.7 billion. Fourth quarter net income increased 12% to $1.3 billion, resulting in earnings of $1.05 per share, including special items. Excluding those items (such as asset amortization related to acquisition activity), CVS reported earnings of $1.12 per share, beating the analyst consensus of $1.11 per share and marking a 15.8% increase over the same quarter in 2012.

On a full-year basis, CVS’ 2013 revenue increased 3% to $126.8 billion. Full-year net income increased 19% to $4.6 billion, resulting in earnings of $3.75 per share; excluding special items, full-year earnings were $4.00 per share.

“I am very pleased with our fourth quarter results, which came in at the high end of our expectations and helped produce a record year,” Larry Merlo, CVS president and CEO, said in a statement Tuesday morning. He added that the period was “somewhat atypical,” largely due to fewer Medicare Part D claims that resulted from sanctions placed on CVS by the Centers for Medicare and Medicaid Services in 2013 over the pharmacy’s marketing of the plan.

CVS said that despite the lower Medicare claims, fourth quarter revenue in its Pharmacy Services segment increased 5.2% to $19.6 billion, largely due to drug cost inflation, new products and new clients in the specialty pharmacy business. Fourth quarter revenue from the Retail Pharmacy segment increased 5.6% to $17.2 billion; within that segment, CVS said that pharmacy same store prescription volumes rose 3.8% if you count each 90-day prescription as three one-month prescriptions.

Looking ahead to 2014, CVS confirmed its full-year 2014 earnings guidance, saying that it expects to deliver earnings somewhere between $4.36 and $4.50, a range that excludes special items and assumes the completion of a $4 billion share repurchase. The company raised its first quarter 2014 earnings guidance to a range of $1.03 to $1.06 per share.

While Merlo did not specifically reference his company’s plans to stop selling cigarettes and other tobacco products — a move that will shave $2 billion worth of sales from its bottom line but will, CVS hopes, bolster its image as a company devoted to consumerhealth — he offered a more general view of the pharmacy’s prospects. “The U.S. health care landscape is undergoing its most transformative change in decades. Health care consumers are taking on greater responsibility for choosing their own plans and controlling costs,” he said. “With our unique pharmacy health care model, we have the ability and agility to offer innovative solutions and capitalize on these changing market dynamics.”

Following the release of the pharmacy’s earnings beat, shares of the company ticked up about 2% in Tuesday’s premarket activity; year-over-year, the stock is up 30.6%.