(ESRX) Express Scripts Quarterly Report Beats by a Penny

Express Scripts Inc.’s (ESRX) third quarter 2011 earnings of 79 cents per share (excluding special items) were a penny above the Zacks Consensus Estimate and 22% above the year-ago adjusted earnings of 65 cents per share. The jump in earnings is attributable to lower selling, general and administrative expenses and a lower share count compared with the year-ago quarter.

Quarterly Details

Third quarter revenues of $11.6 billion surpassed the Zacks Consensus Estimate of $11.4 billion and the year ago revenues of $11.3 billion.

Adjusted gross profit for the quarter improved 7% to $864.3 million, and adjusted selling, general and administrative expenses decreased 6.2% to $200.3 million.

Total adjusted claims at Express Scripts for the reported quarter came in at 160.5 million against 162.5 million in the third quarter of 2010. Claims comprise network claims, home delivery claims, specialty and other claims. The latter includes drugs distributed through patient assistance schemes and limited distribution contracts with pharmaceutical manufacturers in addition to the Emerging Market claims. Total adjusted claims (thrice the home delivery claims since such claims are typically 90-day claims) of 184.8 million were less than the year-ago adjusted claims of 186.9 million.

Express Scripts revised its guidance in early October and said that it expects the continuing stagnant economic conditions to impact claims volumes more than previously expected. As a result, the company now expects total adjusted claims for 2011 to be below the previously guided range of 750 to 780 million. The shortfall in combined utilization and organic growth is expected to be partially offset by strong claims growth in Canadian operations.

2011 Guidance Reiterated

Express Scripts reaffirmed its earnings projection for 2011. Adjusted earnings are expected between $2.95 and $3.05 per share, reflecting a year-over-year increase of 18% to 22%. The Zacks Consensus Estimate for 2011 currently stands at $2.99 per share. The company had revised its guidance earlier this month.

While the company did not provide any guidance for 2012, it said that it expects claims utilization and in-group attrition to remain consistent with current year levels. Client retention, based on prescription volume, is expected to cross 97%. Importantly, Express Scripts expects that more than 95% of its clients prescription volume will move forward into 2012 without  Walgreens (WAG) as a network provider. The company expects claims growth in the range of 0-2% including the impact of three new signature wins.

We expect the company to provide full guidance for 2012 once it completes its $29.1 billion acquisition of Medco Health Solutions (MHS) in the first half of 2012. Express Scripts expects the Medco acquisition to be slightly accretive to earnings (excluding integration and deal-related costs and charges) in the first full year after closing and moderately accretive once fully integrated. We currently have a Neutral recommendation on Express Scripts.

EXPRESS SCRIPTS (ESRX): Free Stock Analysis Report

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WALGREEN CO (WAG): Free Stock Analysis Report

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