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Medco Health's Q3 profit falls, but boosts bottom end of 2011 outlook

Published: 16:49 26 Oct 2011 BST

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Medco Health (NYSE:MHS) reported Wednesday that third quarter earnings fell more than four percent on lower priced generic drugs.

Still, the pharmacy benefit manager, which in July agreed to be bought by Express Scripts in a cash and stock deal valued at $29.1 billion, boosted the bottom end of its full year guidance range by six cents, to between $4.08 to $4.12 per share, up from the prior range of $4.02 to $4.12 per share.

Investors cheered the news, with Medco shares rising nearly 10 percent, to trade at $51.28 as of 11:49am ET.

For the three months ending September 24, the company reported a profit of $355.4 million, or 90 cents per share, compared to $371.5 million, or 85 cents per share, a year ago. The company said it had fewer shares outstanding in the latest quarter.

Excluding items such as $36.6 million in costs related to the Express Scripts merger, earnings were 96 cents in the latest quarter. Excluding all intangible amortization and merger-related expenses, earnings in the third quarter rose 12.6 percent to $1.07 per share.

Total net revenues increased 4.1 percent year-over-year to $17.0 billion, primarily the result of new client wins and higher prices charged by brand-name pharmaceutical manufacturers, which was partially offset by higher volumes of lower-priced generic drugs, the company said.

Analysts polled by Thomson Reuters had most recently forecast earnings of $1.05 a share on revenue of $17.04 billion.

Gross margins for the quarter were flat at 6.9 percent.

Mail-order prescriptions increased 0.4 percent to 27.4 million, including generic mail-order prescriptions which increased 3.5 percent to 17.7 million during the quarter.

The overall generic dispensing rate increased 2.2 percentage points to a record 73.8 percent.

Total prescription volume fell 0.7 percent to 233.6 million over third-quarter 2010. Generic mail-order prescription volumes increased 3.5 percent, while brand-name mail-order prescription volumes decreased 4.9 percent. Retail prescription volumes decreased 1.2 percent.

Specialty pharmacy revenues for Accredo Health Group increased 16.7 percent to a record $3.4 billion during the quarter. The growth reflects higher prescription volumes, increases in manufacturer brand pricing, broader utilization of specialty products, and the impact of recently introduced drugs.

Looking forward, chairman and CEO, David B. Snow, commented: "The generic wave for 2012 is forecasted to be strong, and our clients and members are expected to save approximately $6.5 billion in 2012 from increased generic utilization, which also has the effect of lowering our revenues due to the significant price difference in generics compared to brand-name drugs."

"We remain enthusiastic about the prospects for our merger with Express Scripts. We are as confident as we were on the announcement date that the pending merger will close in the first-half of 2012, and the new company will drive even higher levels of value to all constituents."

During the third quarter of 2011, Medco repurchased 6.3 million shares through a pre-authorized trading plan at a cost of $350 million. Year-to-date, the company has bought back 29.3 million shares at a cost of $1.787 billion.

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