Medco Health Solutions 4Q profit rises

Medco Health Solutions Inc., the biggest U.S. prescription-benefit manager, said Wednesday its fourth-quarter earnings soared 29 percent on higher overall revenue and improved results in its key specialty pharmacy business.

The results beat Wall Street expectations, the company raised its profit forecast, its board authorized a bigger share buyback and shares set a new 52-week high. They rose $6.21, or 10.08 percent, to close at $67.80 on the New York Stock Exchange.

Net income hit a record $228.8 million, or 77 cents per share, in the three months ended Dec. 30, up from $176.8 million, or 57 cents per share, a year ago. Excluding a charge for the ongoing writedown of the value of contracts Medco got when it was spun off from Merck & Co. in 2003, earnings per share would have been 86 cents. Analysts surveyed by Thomson expected 79 cents.

Revenue edged up 1 percent to $10.93 billion, even though the quarter included 13 weeks, compared with 14 weeks a year ago.

Franklin Lakes-based Medco raised its earnings per share forecast for 2007 to $2.94 to $3.01, up from a November forecast of $2.76 to $2.83 per share, and took the unusual step of forecasting for next year.

"We are confident that we will grow earnings per share by at least 20 percent in 2008," David Snow, the chief executive officer, told analysts during a conference call.

He said the same five areas driving growth last year will do so in 2007 and 2008: the specialty drug business, new clients, higher-margin mail order prescriptions, growing use of generic medicines and the more than 1.3 million senior citizens it services under Medicare drug plans.

In addition, the company authorized the repurchase of another $3 billion in Medco shares, on top of the existing $2.5 billion buyback program.

"I think the market really didn't anticipate them raising guidance," said health care analyst Andrew Speller of A.G. Edwards & Sons. "That's the reason for the surge in the stock."

Speller said Medco also put to rest fears, raised last fall, that it would be hurt by a rival's planned merger and news that Wal-Mart and other big discounters were offering some generic drugs for $4 per prescription. He said the discounters only appear to be drawing customers with no prescription plan.

Sales at Accredo Health Group, its specialty pharmacy segment, which handles expensive medications for complex, chronic conditions, rose 7 percent to top $1.4 billion.

Snow said in an interview that Medco, which handles prescriptions for 60 million Americans, should benefit whoever acquires the industry's No. 2 — Caremark Rx Inc. It is weighing competing bids from another rival, Express Scripts Inc., and drugstore chain CVS Corp.

Other pharmacy chains wanting to partner with a neutral prescription benefit manager now are negotiating attractive deals with Medco, Snow said, adding some current Caremark clients may defect.

Should Express Scripts win out, he said, the combination would be bigger than Medco. But Snow said Caremark's customer service has been suffering since it acquired AdvancePCS in 2004. CVS has been telling Caremark shareholders that a Caremark-Express Scripts deal would likely cost the merged company $8 billion in annual revenue from dissatisfied customers bailing out.

Speller said Medco can grab those "crumbs" and if the battle is prolonged, will be "in the catbird seat" for picking up business from plans wanting to avoid uncertainty at Caremark and Express Scripts.

For the full year, Medco posted net income of $630.2 million, or $2.09 per share, up from $602 million, or $2.05 per share, in 2005. Revenue rose to $42.5 billion from $37.9 billion.

Medco said that over 2006, it won nearly $3.3 billion worth of net new business, retained 97.5 percent of its clients and held their average prescription costs to a 2.8 percent increase, its lowest ever.

source:www.medco.com