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Press release from PR Newswire

CVS Caremark Reports Record First Quarter Results

Wednesday, May 02, 2012

CVS Caremark Reports Record First Quarter Results07:00 EDT Wednesday, May 02, 20122012 GUIDANCE RAISED TO REFLECT STRONG PERFORMANCE TO DATE AND THE ANTICIPATED SECOND QUARTER BENEFIT OF THE CONTINUING IMPASSE BETWEEN INDUSTRY PEERSWOONSOCKET, R.I., May 2, 2012 /PRNewswire/ -- CVS Caremark Corporation (NYSE: CVS) today announced revenues, operating profit and net income for the three months ended March 31, 2012. (Logo: http://photos.prnewswire.com/prnh/20090226/NE75914LOGO) First Quarter and Year-Over-Year Highlights:Net revenues increased 19.9% to a record $30.8 billion, with Pharmacy Services up 32.3% and Retail Pharmacy up 9.9% Retail Pharmacy segment same stores sales increased 8.4% Adjusted EPS of $0.65, up 14.7%; GAAP diluted EPS from continuing operations of $0.59 Generated free cash flow of $2.4 billion; cash flow from operations of $2.8 billion2012 Guidance:Raised full-year Adjusted EPS guidance to $3.23 to $3.33 and GAAP diluted EPS from continuing operations guidance to $3.01 to $3.11   Set second quarter Adjusted EPS guidance of $0.78 to $0.80 and GAAP diluted EPS from continuing operations guidance of $0.72 to $0.74 Reconfirmed full-year free cash flow guidance of $4.6 to $4.9 billion and cash flow from operations of $6.2 to $6.4 billion  RevenuesNet revenues for the three months ended March 31, 2012, increased 19.9% or $5.1 billion, to $30.8 billion, up from $25.7 billion in the three months ended March 31, 2011. Revenues in the Pharmacy Services segment increased 32.3% to $18.3 billion in the three months ended March 31, 2012. This increase was primarily associated with new activity resulting from our acquisition of the Medicare prescription drug plan of Universal American Corp. ("UAM Medicare PDP Business") in the second quarter of 2011, new client starts associated with our highly successful 2011 selling season, and drug cost inflation. Pharmacy network claims processed during the three months ended March 31, 2012, increased 25.9% to 198.5 million, compared to 157.7 million in the prior year period. The increase in pharmacy network claims was primarily due to the Company's 2011 acquisition of the UAM Medicare PDP Business, as well as new client starts. Mail choice claims processed during the three months ended March 31, 2012 increased approximately 16.6% to 20.4 million compared to 17.5 million in the prior year period. The increase in the mail choice claim volume was primarily driven by new client starts and the continued adoption of our Maintenance Choice® program. Revenues in the Retail Pharmacy segment increased 9.9% to $16.0 billion in the three months ended March 31, 2012. Same store sales increased 8.4% over the prior year period, with pharmacy same store sales increasing 9.8% over the prior year period. This increase in pharmacy same store sales included a significant benefit associated with Walgreens no longer being part of the Express Scripts pharmacy provider network as of January 1, 2012. Calendar day shifts in the first quarter of 2012, which had one additional weekday compared with the same period in 2011, positively impacted pharmacy same store sales by approximately 50 basis points; while the extra day in 2012 due to leap year had a positive impact on pharmacy same store sales of approximately 75 basis points. Additionally, pharmacy same store prescription volumes rose 7.2% when 90-day scripts are counted as one script. When converting 90-day scripts into 3 scripts, our same store prescription volumes increased 9.2% in the quarter. Pharmacy same store sales were negatively impacted by approximately 305 basis points due to recent generic introductions. Pharmacy same store sales were also negatively impacted by a weak flu season, which was partially offset by the early onset of the allergy season. Front store same store sales increased 5.3% in the three months ended March 31, 2012, and were positively impacted by approximately 120 basis points from the one extra day due to leap year. For the three months ended March 31, 2012, the generic dispensing rate increased approximately 270 basis points to 76.5% in our Pharmacy Services segment and 290 basis points to 78.1% in our Retail Pharmacy segment, compared to the prior year period.Income from Continuing Operations Attributable to CVS CaremarkIncome from continuing operations attributable to CVS Caremark for the three months ended March 31, 2012, increased $67 million to $777 million, compared with $710 million during the three months ended March 31, 2011. The increase in income from continuing operations attributable to CVS Caremark was primarily driven by an 18.4% increase in operating profit in our Retail Pharmacy segment. Our retail business benefited significantly from the continuing contractual impasse between Walgreens and Express Scripts, the extra day due to leap year, and the continued growth of our popular Maintenance Choice program. Additionally, effective January 1, 2012, the Company changed its methods of accounting for prescription drug inventories in the Retail Pharmacy segment, which resulted in an after tax benefit of approximately $19 million, or approximately one cent per share, during the first quarter. Adjusted earnings per share from continuing operations attributable to CVS Caremark ("Adjusted EPS") for the three months ended March 31, 2012 and 2011 was $0.65 and $0.57, respectively. Adjusted EPS excludes $118 million and $106 million of intangible asset amortization related to acquisition activity in the three months ended March 31, 2012 and 2011, respectively. GAAP earnings per diluted share from continuing operations attributable to CVS Caremark for the three months ended March 31, 2012 and 2011 was $0.59 and $0.52, respectively. Larry Merlo, president and CEO, stated: "We posted an outstanding first quarter with strong results across the board. Results in both our retail and PBM segments came in at the high end of our guidance, while EPS exceeded expectations. We also generated $2.4 billion in free cash during the quarter, which places us comfortably on track to achieve our goal for the year." Mr. Merlo continued, "Our retail team has done an outstanding job capitalizing on the unprecedented opportunity for share gains afforded to us by the impasse between two of our industry peers. At the same time, while it is still early in the 2013 PBM selling season, we're optimistic about the opportunities and continue to feel very good about our position in the marketplace. With our stable business and unmatched breadth of capabilities, we are very well positioned for success in the 2013 and 2014 selling seasons."Real Estate ProgramDuring the three months ended March 31, 2012, the Company opened 32 new retail drugstores and closed seven retail drugstores and one onsite pharmacy. In addition, the Company relocated 40 retail drugstores. As of March 31, 2012, the Company operated 7,428 locations, including 7,352 retail drugstores, 29 onsite pharmacies, 31 retail specialty pharmacy stores, 12 specialty mail order pharmacies and four mail order pharmacies in 44 states, the District of Columbia and Puerto Rico. GuidanceThe Company raised its earnings guidance for the full year 2012 to reflect the solid first quarter performance and the anticipated benefit to second quarter results of approximately $0.03 to $0.04 per share from the continuing impasse between Walgreens and Express Scripts. The guidance adjustment reflects the potential estimated benefit if the stalemate continues only through the end of the second quarter and does not contemplate any potential benefit beyond the second quarter. Based on these assumptions, the Company currently expects to deliver Adjusted EPS of $3.23 to $3.33 and GAAP diluted earnings per share from continuing operations of $3.01 to $3.11 per share in 2012. The Company now expects the Retail Pharmacy segment's operating profit to increase between 10.5% and 12.5%, up from a range of 8.5% to 10.5%, while the Pharmacy Services segment's operating profit growth is still expected to increase between 11% and 15%. The Company reiterated its 2012 free cash flow guidance and expects to generate between $4.6 billion and $4.9 billion. Further, the Company confirmed that it expects to generate cash flow from operations in 2012 in the range of $6.2 billion to $6.4 billion. These 2012 guidance estimates assume the completion of $3.0 billion in previously authorized share repurchases. Teleconference and WebcastThe Company will be holding a conference call today for the investment community at 8:30 am (EDT) to discuss its quarterly results. An audio webcast of the call will be broadcast simultaneously for all interested parties through the Investor Relations section of the CVS Caremark website at http://info.cvscaremark.com/investors. This webcast will be archived and available on the website for a one-year period following the conference call.About the CompanyCVS Caremark is dedicated to helping people on their path to better health as the largest integrated pharmacy company in the United States. Through the Company's more than 7,300 CVS/pharmacy® stores; its leading pharmacy benefit manager serving more than 60 million plan members; and its retail health clinic system, the largest in the nation with approximately 600 MinuteClinic® locations, it is a market leader in mail order, retail and specialty pharmacy, retail clinics, and Medicare Part D Prescription Drug Plans. As a pharmacy innovation company with an unmatched breadth of capabilities, CVS Caremark continually strives to improve health and lower costs by developing new approaches such as its unique Pharmacy Advisor® program that helps people with chronic diseases such as diabetes obtain and stay on their medications. Find more information about how CVS Caremark is reinventing pharmacy for better health at http://info.cvscaremark.com/.Forward-Looking StatementsThis 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, 2011 and under the section entitled "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Quarterly Report on Form 10-Q. CVS CAREMARK CORPORATIONCondensed Consolidated Statements of Income(Unaudited)Three Months EndedMarch 31, In millions, except per share amounts2012(1)2011Net revenues$   30,798$     25,695Cost of revenues25,68520,953Gross profit5,1134,742Operating expenses3,7093,437Operating profit1,4041,305Interest expense, net132134Income before income tax provision1,2721,171Income tax provision496462Income from continuing operations776709Income (loss) from discontinued operations, net of tax (1)3Net income775712Net loss attributable to noncontrolling interest11Net income attributable to CVS Caremark $         776$           713Income from continuing operations attributable to CVS Caremark:Income from continuing operations$         776$           709Net loss attributable to noncontrolling interest11Income from continuing operations attributable to CVS Caremark$         777$           710Basic earnings per common share:   Income from continuing operations attributable to CVS Caremark $         0.60 $            0.52    Income (loss) from discontinued operations attributable to CVS Caremark??    Net income attributable to CVS Caremark$       0.60$           0.52    Weighted average basic common shares outstanding1,2991,362Diluted earnings per common share: Income from continuing operations attributable to CVS Caremark$         0.59$          0.52    Income (loss) from discontinued operations attributable to CVS Caremark??    Net income attributable to CVS Caremark$         0.59$          0.52    Weighted average diluted common shares outstanding1,3091,371Dividends declared per common share$   0.1625$     0.1250 (1)     Effective January 1, 2012, the Company changed its methods of accounting for prescription drug inventories in the Retail Pharmacy segment. Additional details of this accounting change are discussed in Note 2 to the condensed consolidated financial statements included in the Company's Form 10-Q for the quarter ended March 31, 2012.  CVS CAREMARK CORPORATIONCondensed Consolidated Balance Sheets(Unaudited)March 31,December 31,In millions, except per share amounts2012(1)2011Assets:    Cash and cash equivalents$    2,211$     1,413    Short-term investments55    Accounts receivable, net6,1096,047    Inventories10,67710,046    Deferred income taxes538503    Other current assets351580       Total current assets19,89118,594    Property and equipment, net8,5178,467    Goodwill26,43126,458    Intangible assets, net9,7999,869    Other assets1,3681,155       Total assets$  66,006$   64,543Liabilities:    Accounts payable$    5,240$     4,370    Claims and discounts payable3,6613,487    Accrued expenses4,5063,293    Short-term debt?750    Current portion of long-term debt556       Total current liabilities13,41211,956    Long-term debt9,2069,208    Deferred income taxes3,8753,853    Other long-term liabilities1,4311,445    Commitments and contingencies     Redeemable noncontrolling interest2930Shareholders' equity:Preferred stock, par value $0.01: 0.1 shares authorized; none issued or     outstanding??Common stock, par value $0.01: 3,200 shares authorized; 1,650 shares      issued and 1,290 shares outstanding at March 31, 2012 and 1,640 shares       issued and 1,298 shares outstanding at December 31, 2011  16  16Treasury stock, at cost: 358 shares at March 31, 2012 and 340 shares at       December 31, 2011 (12,752) (11,953)Shares held in trust: 2 shares at March 31, 2012     and December 31, 2011  (56) (56)Capital surplus28,45028,126Retained earnings22,56622,090Accumulated other comprehensive loss(171)(172)    Total shareholders' equity38,05338,051Total liabilities and shareholders' equity$  66,006$   64,543 (1)     Effective January 1, 2012, the Company changed its methods of accounting for prescription drug inventories in the Retail Pharmacy segment. Additional details of this accounting change are discussed in Note 2 to the condensed consolidated financial statements included in the Company's Form 10-Q for the quarter ended March 31, 2012. CVS CAREMARK CORPORATIONCondensed Consolidated Statements of Cash Flows(Unaudited)Three Months EndedMarch 31, In millions2012(1)2011Cash flows from operating activities:    Cash receipts from customers$    29,207$       22,971    Cash paid for inventory and prescriptions dispensed by retail network pharmacies(22,515)(17,445)    Cash paid to other suppliers and employees(3,751)(3,342)    Interest received11    Interest paid (128)(150)    Income taxes paid (28)(169)Net cash provided by operating activities2,7861,866Cash flows from investing activities:    Purchases of property and equipment(376)(309)    Proceeds from sale-leaseback transactions?11    Proceeds from sale of property and equipment?12    Acquisitions (net of cash acquired) and other investments(74)(11)    Purchase of available-for-sale investments?(2)    Proceeds from sale of subsidiary7?Net cash used in investing activities(443)(299)Cash flows from financing activities:    Decrease in short-term debt(750)?    Repayments of long-term debt(52)(301)    Dividends paid(211)(171)    Proceeds from exercise of stock options278107    Repurchase of common stock(810)(467)Net cash used in financing activities(1,545)(832)Net increase in cash and cash equivalents798735Cash and cash equivalents at the beginning of the period1,4131,427Cash and cash equivalents at the end of the period$       2,211$          2,162Reconciliation of net income to net cash provided by operating activities:    Net income$          775$            712    Adjustments required to reconcile net income to net cash provided by operating activities:          Depreciation and amortization423374          Stock-based compensation3636          Deferred income taxes and other non-cash items2170          Change in operating assets and liabilities, net of effects of acquisitions:             Accounts receivable, net(70)(423)                Inventories(776)514                Other current assets286(30)                Other assets(189)(52)                Accounts payable and claims and discounts payable1,044535                Accrued expenses1,250156                Other long-term liabilities(14)(26)Net cash provided by operating activities$       2,786$         1,866 (1)     Effective January 1, 2012, the Company changed its methods of accounting for prescription drug inventories in the Retail Pharmacy segment. Additional details of this accounting change are discussed in Note 2 to the condensed consolidated financial statements included in the Company's Form 10-Q for the quarter ended March 31, 2012. Adjusted Earnings Per Share(Unaudited) 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:  Three Months EndedMarch 31, In millions, except per share amounts20122011(2)Income before income tax provision$       1,272$     1,171Amortization118106Adjusted income before income tax provision1,3901,277Adjusted income tax provision(1)542503Adjusted income from continuing operations848774Net loss attributable to noncontrolling interest11Adjusted income from continuing operations attributable to CVS Caremark$         849$       775Weighted average diluted common shares outstanding1,3091,371Adjusted earnings per share from continuing operations attributable to CVS Caremark$        0.65$      0.57(1)  The adjusted income tax provision is computed using the effective income tax rate from the consolidated statement of income.(2)   The adjusted results for the three months ended March 31, 2011 have been revised to reflect the results of TheraCom as discontinued operations. Free Cash Flow(Unaudited)The Company defines free cash flow as net cash provided by operating activities less net additions to properties 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: Three Months EndedMarch 31,In millions20122011Net cash provided by operating activities$      2,786$     1,866  Subtract: Additions to property and equipment(376)(309)  Add: Proceeds from sale-leaseback transactions?11Free cash flow $   2,410$     1,568  Supplemental Information(Unaudited)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:  In millionsPharmacy ServicesSegment(1)(3)Retail Pharmacy SegmentCorporate  SegmentIntersegment Eliminations(2)ConsolidatedTotalsThree Months Ended  March 31, 2012:    Net revenues $             18,300 $          16,024 $          -- $            (3,526) $       30,798    Gross profit6164,572--(75)5,113    Operating profit (loss)3491,298(168)(75)1,404  March 31, 2011:    Net revenues 13,829 14,587 -- (2,721) 25,695    Gross profit6304,147--(35)4,742    Operating profit (loss)3911,096(147)(35)1,305 (1)     Net revenues of the Pharmacy Services segment include approximately $2.3 billion and $2.2 billion of retail co-payments for the three months ended March 31, 2012 and 2011, respectively.(2)     Intersegment eliminations relate to two types of transactions: (i) Intersegment revenues that occur when Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products. When this occurs, both the Pharmacy Services and Retail Pharmacy segments record the revenue on a standalone basis, and (ii) Intersegment revenues, gross profit and operating profit that occur when Pharmacy Services segment customers, through the Company's intersegment activities (such as the Maintenance Choice program), elect to pick-up their maintenance prescriptions at Retail Pharmacy segment stores instead of receiving them through the mail. When this occurs, both the Pharmacy Services and Retail Pharmacy segments record the revenue, gross profit and operating profit on a standalone basis. Beginning in the fourth quarter of 2011, the Maintenance Choice eliminations reflect all discounts available for the purchase of mail order prescription drugs. The following amounts are eliminated in consolidation in connection with the item (ii) intersegment activity: net revenues of $798 million and $558 million for the three months ended March 31, 2012 and 2011, respectively, gross profit and operating profit of $75 million and $35 million for the three months ended March 31, 2012 and 2011, respectively.(3)     The results of the Pharmacy Services segment for the three months ended March 31, 2011 have been revised to reflect the results of TheraCom as discontinued operations.  Supplemental Information(Unaudited)Pharmacy Services SegmentThe following table summarizes the Pharmacy Services segment's performance for the respective periods: Three Months EndedMarch 31,In millions20122011(4)Net revenues$ 18,300$ 13,829Gross profit616630    Gross profit % of net revenues3.4%4.6%Operating expenses267239     Operating expense % of net revenues1.5%1.7%Operating profit349391     Operating profit % of net revenues1.9%2.8%Net revenues(1):     Mail choice(2)$ 5,666$    4,393   Pharmacy network(3)12,5849,377    Other5059Pharmacy claims processed(1):    Total218.9175.2    Mail choice(2)20.417.5    Pharmacy network(3)198.5157.7Generic dispensing rate(1):    Total76.5%73.8%    Mail choice(2)69.0%63.8%    Pharmacy network(3)77.3%74.8%Mail choice penetration rate22.8%24.1% (1)     Pharmacy network net revenues, claims processed and generic dispensing rates do not include Maintenance Choice, which are included within the mail choice category. (2)     Mail choice is defined as claims filled at a Pharmacy Services' mail facility, which include specialty mail claims, as well as 90-day claims filled at retail under the Maintenance Choice program. (3)     Pharmacy network is defined as claims filled at retail pharmacies, including our retail drugstores, but excluding Maintenance Choice activity.(4)     The results of the Pharmacy Services segment for the three months ended March 31, 2011 have been revised to reflect the results of TheraCom as discontinued operations. EBITDA and EBITDA per Adjusted Claim(Unaudited)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: Three Months EndedMarch 31,In millions, except per adjusted claim amounts20122011(1)Operating profit$      349$      391Depreciation and amortization 12298EBITDA 471489  Adjusted claims257.0207.6EBITDA per adjusted claim$    1.83$       2.36 (1)     The results of the Pharmacy Services segment for the three months ended March  31, 2011 have been revised to reflect the results of TheraCom as discontinued operations.  Supplemental Information(Unaudited)Retail Pharmacy SegmentThe following table summarizes the Retail Pharmacy segment's performance for the respective periods: Three Months EndedMarch 31,In millions20122011Net revenues$     16,024$   14,587Gross profit4,5724,147    Gross profit % of net revenues28.5%28.4%Operating expenses3,2753,051     Operating expense % of net revenues20.4%20.9%Operating profit1,2981,096     Operating profit % of net revenues8.1%7.5%Net revenue increase:    Total9.9%4.4%    Pharmacy11.1%5.1%    Front store7.1%2.8%Same store sales increase:     Total8.4%2.6%    Pharmacy9.8%3.7%    Front store5.3%0.4%Generic dispensing rate78.1%75.2%Pharmacy % of total revenues69.9%69.1%Third party % of pharmacy revenue97.7%97.5%Retail prescriptions filled179.5165.6 Adjusted Earnings Per Share Guidance(Unaudited)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, 2011 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. Year EndingIn millions, except per share amountsDecember 31, 2012Income before income tax provision$       6,324$    6,516Amortization475475Adjusted income before income tax provision6,7996,991Adjusted income tax provision2,6522,727Adjusted income from continuing operations4,1474,264Net loss attributable to noncontrolling interest33Adjusted income from continuing operations attributable to CVS Caremark$      4,150$    4,267Weighted average diluted common shares outstanding1,2831,280Adjusted earnings per share from continuing operations attributable to CVS Caremark$         3.23$      3.33 Free Cash Flow Guidance(Unaudited)The following reconciliation of net cash provided by operating activities to free cash flow 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, 2011 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 cash flow performance by adjusting cash provided by operating activities, by capital expenditures and proceeds from sale-leaseback transactions.Year EndingIn millionsDecember 31, 2012 Net cash provided by operating activities$       6,195$          6,420    Subtract:  Additions to property and equipment(2,145)(2,075)    Add:  Proceeds from sale-leaseback transactions500600Free cash flow $       4,550$          4,945 SOURCE CVS Caremark CorporationFor further information: Investor Contact, Nancy Christal, Senior Vice President, Investor Relations, +1-914-722-4704, or Media Contact, Eileen H. Boone, Senior Vice President, Corporate Communications & Community Relations, +1-401-770-4561