CVS-Aetna Deal Masks Weak Quarter

CVS stock is rallying, as investors receive a boost of confidence from a new deal with Aetna. But that news is masking a weak quarter for the drugstore.
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CVS Caremark

(CVS) - Get Report

missed second-quarter expectations, lowering its outlook. But a massive deal with health insurer



overshadowed any of these concerns.

CVS said it will provide Aetna's pharmacy benefits management services for 12 years starting Jan. 1. Its Caremark unit will serve about 9.7 million Aetna PBM members and administer $9.5 billion in drug spending each year.

Moody's Investor Services said while this contract with Aetna will not benefit CVS' earnings until 2013, the deal is a long-term credit positive.

As a result, CVS shares ended the day up 3.1% to $31.54.

During the quarter, CVS earned $821 million, or 60 cents a share, a 7% decline for the drugstore from $886 million, or 60 cents, in the year-ago period. Excluding one-time items, earnings were 65 cents, just shy of analysts' forecast of 68 cents a share.

CVS revenue slipped 3% to $24 billion, while same-store sales grew 2.1%. The company attributed the decline in revenue to the termination of several contracts worth about $4.5 billion that it announced earlier in the year.

Looking ahead, CVS now foresees full-year earnings in the range of $2.68 to $2.73, down from prior guidance of $2.77 to $2.84 a share. It also expects same-store sales to rise between 2% and 3.5%, compared with earlier outlook of a gain of 3.5% to 5.5%.

-- Reported by Jeanine Poggi in New York.

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