CVS Caremark raises outlook, sees exchanges helping in 2014

Reuters

By Phil Wahba

Nov 5 (Reuters) - CVS Caremark Corp raised itsprofit forecast for the year on Tuesday, as sales grew at itsdrugstore chain and it processed more prescriptions from newclients.

The company also said it expects private health insuranceexchanges to help business next year.

Shares were up 2.4 percent at $63.44 in late-morning trade.

CVS, which operates the No. 2 U.S. drugstore chain and amajor pharmacy benefits management business, reported totalrevenue rose 5.8 percent to $31.97 billion in the third quarter.Wall Street analysts expected $31.53 billion, according toThomson Reuters I/B/E/S.

Looking ahead to 2014, CVS said its participation in public and private health insurance exchanges should lift revenue in2014. The company will provide a more detailed forecast for 2014and beyond at its analyst day on Dec. 18.

Still, CVS Caremark Chief Executive Larry Merlo toldinvestors on a conference call that the company expects largeemployers to take a "wait-and-see" approach to private healthinsurance exchanges, especially for active employees, based onhis conversations with clients and private exchange operators.

Merlo also said large employers may choose to move retireesto the exchanges over time.

Private exchanges mimic the coverage mandated under the U.S.Affordable Care Act and allow a company's employees to choose aplan from multiple insurers, a sign of the shifting landscapefor corporate healthcare because of rising costs.

CVS, whose Caremark PBM unit competes with Express ScriptsHolding Co, said it has completed 75 percent ofrenewals for the 2014 selling season and has won $1.8 billion innew contracts, net of attrition in its business processingprescriptions for beneficiaries of Medicare Part D. The federalprogram subsidizes the cost of prescription drugs for seniors.

In August, CVS said it expected to lose about 10 percent ofpatients enrolled in one of its Medicare prescription drug plansbecause of a marketing ban imposed earlier in the year by theCenters for Medicare and Medicaid Services.

The CMS ban on some Medicare Part D plan activity arose inJanuary after CVS converted to a new enrollment system, whichled to service problems, such as an increase in calls and problems in processing claims. In some instances, patient claimscould not be processed at pharmacies.

Merlo reiterated his belief that CVS will have the problemsfixed by the end of 2013.

RAISES 2013 PROFIT FORECAST

Revenue in pharmacy services rose 7.8 percent in thequarter, primarily because it processed more claims with newclients.

In CVS' retail business, sales at stores open at least yearwere up 3.6 percent, as it filled more prescriptions. But CVSreported a small decline in comparable sales of generalmerchandise due to "softer traffic."

"We have seen the promotional environment intensify," Merlotold analysts on the call.

CVS rival Walgreen Co has reported that sales rosein October but traffic fell 0.6 percent.

CVS, which also competes with Rite Aid Corp, earned$1.25 billion, or $1.03 per share, in the quarter, up from $1billion, or 80 cents per share, a year earlier.

Excluding items such as a gain from a legal settlement,adjusted profit came to $1.05 per share, 3 cents better thanWall Street expected.

CVS now sees posting adjusted earnings per share of $3.98 to$4.01 this year, versus its prior forecast of $3.90 to $3.96.

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