CVS Caremark Corp.'s first quarter earnings jumped 9 percent, due in part to a contract impasse between two rivals, and the drugstore chain expects that benefit to continue.
Walgreen Co., the nation's largest drugstore chain, stopped filling prescriptions for Express Scripts Inc., the biggest pharmacy benefits manager, at the end of 2011, when a contract between the two companies ran out.
CVS Caremark, which operates drugstores and a PBM business, said it saw a gain of about 3 cents per share to first-quarter earnings, as Walgreen customers migrated to its stores. Overall, CVS Caremark's net income grew 9 percent in the quarter to $776 million, or 59 cents per share. Revenue rose 20 percent to $30.8 billion.
The Woonsocket, R.I., company predicts another gain of between 3 cents and 4 cents per share for its second quarter earnings, assuming Walgreen and Express Scripts don't start doing business again. But CVS Caremark won't forecast a possible benefit beyond the second quarter.
Barclays Capital analyst Meredith Adler asked CVS Caremark CEO Larry Merlo about that on a Wednesday morning conference call.
QUESTION: I was just wondering why you are being so conservative about not assuming to see any of this benefit in the second half of the year. Is that just because you don't know what Walgreen is going to do to try to win those customers back if this dispute is resolved?
RESPONSE: We had said that this was a very fluid situation, and we certainly can't predict the outcome or let alone the timing of that, and that we would take this one quarter at a time recognizing ... there is an awful lot of things we are doing to ensure that those new customers have an outstanding experience and that we convert them to not just the pharmacy customer but a front-store customer.