Earnings Grow at Express Scripts in Q3


Express Scripts Holding Company (ESRX) posted third quarter 2013 earnings per share (excluding special items) of $1.08, up from $1.03 reported in the year-ago quarter. The Zacks Consensus Estimate was $1.08.

Excluding special items but including amortization expense, earnings per share came in at 71 cents compared to 64 cents in the year-ago quarter.

Quarter in Detail

Revenues were down 3.2% year over year in the reported quarter to $25.9 billion but surpassed the Zacks Consensus Estimate of $25.0 billion. The decrease in revenues was attributed to lower claims volume owing to the transition of claims of UnitedHealthcare Group.     

Adjusted gross profit was down 3.4% to $2.1 billion in the reported quarter. Adjusted selling, general and administrative expenses declined 17.2% to $510.8 million.

Total adjusted claims at Express Scripts for the reported quarter came in at $358.1 million, down 9% due to an expected roll-off of claims from UnitedHealthcare Group.

Cash generated from operating activities came in at $1.0 billion, up 31% year over year. Express Scripts repurchased 11.6 million shares for $751.5 million and still has 51.3 million shares remaining under its current share repurchase program. We believe the buyback program highlights the company’s commitment to create value for shareholders.

2013 Earnings Outlook Narrowed

Apart from announcing third quarter 2013 results, Express Scripts narrowed its earnings guidance range for 2013 due to a reduced tax rate. The company now expects adjusted earnings in the range of $4.30 - $4.34 per share in 2013 compared to the earlier projected range of $4.26 - $4.34 per share.

The new projected range represents year- over-year growth of 15% – 16% compared to the earlier projected range of 14% – 16%.

The Zacks Consensus Estimate currently stands at $4.31 per share, within the new guidance range.

For the fourth quarter of 2013, Express Scripts expects adjusted earnings in the range of $1.09–$1.13 per share. The Zacks Consensus Estimate for the fourth quarter is $1.12, towards the higher end of the company’s estimate.

The third quarter results did not surprise us. In Apr 2012, Express Scripts acquired healthcare company Medco Health Solutions. We view the acquisition as positive for the company and are impressed by the integration process.

However, the introduction of insurance exchanges, additional costly regulations, escalation of brand drug prices and increased specialty drug utilization loom large on the company’s business in the long run.

Currently, Express Scripts carries a Zacks Rank #2 (Buy). Other stocks which look attractive include McKesson Corporation (MCK), Cardinal Health (CAH) and CVS Caremark Corporation (CVS). While Cardinal Health carries a Zacks Rank #1 (Strong Buy), both McKesson and CVS Caremark are Zacks Rank #2 (Buy) stocks.

Read the Full Research Report on CAH
Read the Full Research Report on MCK
Read the Full Research Report on ESRX
Read the Full Research Report on CVS

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