Earnings Preview: Express Scripts reports on 4Q

Express Scripts Holding Co. will report how 2012 ended when it announces quarterly results Monday, but investors will be interested more in the pharmacy benefits manager's 2013 expectations, especially after it said in November a weak business climate could influence results.

WHAT TO WATCH FOR: Express Scripts will announce its earnings projections for 2013 when it reports the results. The St. Louis company said when it reported third-quarter results that unemployment rates, low health care use and increased client demands and expectations all could influence its expectations for the new year.

Company leaders told analysts that health plan clients expect membership rolls to decline this year, in part because big employers are using contractors and part-time workers instead of hiring more full-time workers.

For the fourth quarter, expect sizeable gains in some categories compared with the final quarter of 2011. For instance, Express Scripts revenue more than doubled to $26.9 billion in last year's third quarter compared to 2011. Express Scripts closed its $29.1-billion acquisition of competitor Medco Health Solutions Inc. last spring, making it the nation's largest pharmacy benefits manager, or PBM.

Medco results are now included, but they were not in the 2011 quarters.

Generic drugs also will continue to affect results, as they have for a few quarters now for Express Scripts and drugstore operators. Top-selling medicines like the cholesterol fighter Lipitor have lost U.S. patent protection, which exposes them to cheaper generic competition.

Generic drugs hurt pharmacy revenue because they cost less than brand-name products. But they help profitability because they provide a wider margin between the cost for the pharmacy to purchase the drugs and the reimbursement received.

Express Scripts will release its results Monday afternoon and then hold a Tuesday morning conference call to discuss them.

The company's shares had a healthy performance in 2012, climbing 21 percent to close the year at $54, while the Standard & Poor's 500 index rose more than 13 percent.

WHY IT MATTERS: The Medco acquisition created a PBM large enough to handle the prescriptions of more than one in three Americans.

Pharmacy benefits managers run prescription drug plans for employers, insurers and other customers. They process mail-order prescriptions and handle bills for prescriptions filled at retail pharmacies. They use large purchasing power to negotiate lower drug prices and make money by reducing costs for health plan sponsors and members.

WHAT'S EXPECTED: Analysts surveyed by FactSet expect, on average, earnings of $1.04 per share on $27.33 billion in revenue.

THE 2011 QUARTER: Express Scripts' net income fell 12 percent in the final quarter of 2011, largely on costs tied to the Medco deal. Express Scripts earned $290.4 million, or 59 cents per share, on $12.1 billion in revenue.

Results included charges totaling 14 cents per share related to the Medco deal.