CVS Caremark Corp. (NYSE: CVS) said Thursday its third-quarter profit jumped 39 percent, according to Associated Press.
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However, shares plunged after the company said its struggling Caremark pharmacy benefits management unit lost $2 billion in business over the last few months.
As a result, CEO Tom Ryan said CVS won't reach its own goals in 2010 because profits at Caremark could drop as much as 10 or 12 percent. Three months ago, Ryan said CVS would be "very disappointed" if its total per-share profit did not grow 13 to 15 percent next year. He said CVS won't reach that goal.
Caremark President Howard McClure will retire before the end of the month, and Ryan will take over the business temporarily.
The move raised questions from analysts about CVS' strategy as a combined drugstore operator and pharmacy benefits manager. In morning trading, CVS stock tumbled $7.50, or 21 percent, to $28.65.
The latest contract losses include $1.7 billion in business for "dual eligible" people who can receive both Medicare and Medicaid benefits. CVS also lost contracts with the New Jersey state Blue Cross plan and Ohio's managed Medicare business. Earlier this year, health insurer Coventry Health Care Inc. said it would not renew a contract with CVS. Retired employees of automaker Chrysler also turned elsewhere.
For the third quarter, the Woonsocket, R.I., company's profit and revenue were about equal to Wall Street's estimates. Net income jumped to $1.02 billion, or 71 cents per share, from $732.5 million, or 50 cents per share, a year prior. Net revenue rose 18 percent to $24.64 billion from $20.86 billion.
Excluding a tax benefit of 11 cents per share, adjusted profit from continuing operations totaled 65 cents per share.
Analysts expected 64 cents per share in profit and $24.61 billion in revenue.
Revenue at CVS drugstores rose 17.9 percent, with sales at stores open at least a year rising 5.7 percent. Meanwhile, revenue from Caremark pharmacy benefits management business rose 23.4 percent. The company said pharmacy network claims processed rose 9 percent to 146.5 million during the quarter, while mail choice claims rose 11.4 percent to 16.4 million.
The company said flu related prescriptions up more than 10 percent, and Ryan expects that to continue during the fourth quarter. He said sales of CVS brand merchandise surged because customers are looking for bargains during the recession.
Looking ahead, the company narrowed its 2009 adjusted profit forecast to between $2.61 and $2.64 per share from prior guidance of $2.59 to $2.64 per share. Analysts expect profit of $2.62 per share.
CVS said David Denton, its controller and chief accounting officer, will replace David Rickard as chief financial officer starting Jan. 1, 2010. Rickard said early this year that he would retire. Denton has worked for CVS for 10 years.
The company also said it will buy back up to $2 billion in stock through the end of 2011.
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