CVS Caremark Corp. warned that 2011 earnings growth could fall below its long-term goals as it spends money to streamline its pharmacy benefits management business and as fewer generic drugs hit the market.
Shares in the company, which operates drugstores and manages prescription drug plans, fell 3 percent Friday.
CVS aims to grow earnings per share by 10 to 15 percent per year excluding one-time items, and same-store sales by 3 to 5 percent through 2015.
But CVS Chief Financial Officer Dave Denton told analysts and investors in New York that 2011 earnings growth would be below the five-year plan’s goals because of expenses to make its PBM business more efficient and fewer introductions of generic drugs, which cost less than name-brand medication but offer drugstores far higher margins.
CVS also said same-store sales rose 2.5 percent in its third quarter, falling below some analyst estimates. But they outperformed rivals Walgreen Co , which reported a small gain, and Rite Aid Corp , where same-store sales have dropped month after month.
CVS executives warned that a sluggish U.S. economy means consumers are still spending less on prescription drugs and general merchandise at drugstores.
Mike Bloom, senior vice president of merchandising, said he expects CVS to get a boost from grocery sales, saying more shoppers are stocking up at CVS in between trips to the supermarket and dollar stores.
“It’s not about adding sushi and lettuce,” Bloom said, but rather about offering staple food items.
After losing several billion dollars worth of PBM contracts last year, CVS said its annual campaign this summer to drum up new business was successful. The PBM business administers prescription drug benefits for employers and health plans. It also operates a large mail-order pharmacy.
Per Lofberg, who heads the PBM, said the company has won $8.7 billion in net new business for 2011. The bulk of that comes from a 12-year deal signed in July to manage benefits for about 9.7 million Aetna Inc. members.
The deal will add 1 to 3 cents to earnings per share in 2011, and 5 cents per year after that, the company forecast.
Denton said the company is targeting net revenue growth of 8 to 11 percent per year for the next five years, led primarily by its PBM.
CVS said it still expects to earn $2.68 to $2.73 per share from continuing operations in 2010, excluding one-time items. On average, analysts are expecting $2.71, according to Thomson Reuters I/B/E/S.
It also kept its revenue forecast calling for a decline of 1 to 3 percent from 2009.
CVS has invested heavily in its walk-in MinuteClinicss, and plans to double the number of locations to 1,000 by 2015. It also calls for net store openings of 125 to 150 per year.
