TRENTON, N.J. - Medco Health Solutions Inc., the nation's top-grossing prescription benefit manager, posted a 9 percent decline in fourth-quarter profit as costs rose for business expansion and acquisitions.
However, its stock surged Tuesday after Medco boosted its earnings forecast.
The Franklin Lakes, N.J.-based company reported net income fell to $207.6 million, or 38 cents per share, for the three months ended Dec. 29, down from $228.8 million, or 39 cents per share, in the same period of 2006.
Its revenue rose 4.1 percent to $11.4 billion in the quarter from $10.9 billion a year earlier.
Excluding a 5-cent charge, earnings were flat at 43 cents per share.
Analysts surveyed by Thomson Financial were expecting earnings per share of 41 cents on revenue of $11.5 billion. Their estimates typically exclude one-time charges.
In a research note, J.P. Morgan analyst Lisa C. Gill called the extra 2 cents a "high-quality beat" as Medco's gross profit was boosted by growth in generics, specialty pharmacy and mail" order prescriptions, plus a lower-than-expected tax rate.
Medco shares rose $2.41, or 4.9 percent, to $51.39. That is close to the high end of their 52-week range of $28.96 to $54.62.
The company raised its expectations for full-year earnings for 2008 to a range of $2.07 to $2.11 per share, up from the previous guidance of $1.95 to $2.01 per share excluding about 20 cents worth of one-time charges.
"Well above our expectations," Gill wrote. Medco has been a client of her company.
Chief Financial Officer JoAnn Reed said the guidance was raised because of "continued positive long-term trends in all areas of our business."
She noted Medco hit a record generic dispensing rate of 61.4 percent in the fourth quarter, partly due to introductions last year of generic versions of prescription drugs with total sales of $14.7 billion. The higher generic rate boosts Medco's income, as it earns a higher profit on those drugs than on brand-name medicines.
Meanwhile, Medco spent $38 million on fourth-quarter startup expenses to serve about 5 million new customers covered by contracts that began in January.
In the year-ago quarter, Medco had a significant gain in profit because a generic version of popular blood thinner Plavix was unexpectedly — and temporarily — available due to a patent dispute.
"We got an enormous supply," six months' worth, Medco Chief Executive Officer David Snow Jr. said in an interview.
Mail-order volume jumped 8 percent in the quarter, but retail prescription volume fell 2.4 percent, partly due to the mild cold and flu season so far.
For the full year, Medco posted net income of $912 million, or $1.63 per share, up from $630 million, or $1.04 per share in 2006. Revenues totaled $44.5 billion from $42.5 billion a year earlier.
"Our strong 2007 performance has set the stage for a stronger 2008 than anticipated," Snow said. "Across our business, we exceeded every goal we set for 2007."
Those included helping clients keep their increase in prescription spending to a record low 2 percent for the year, and beating analysts' expectations for the year.
Associated Press Writer Geoff Mulvihill contributed to this report.
On the Net:
Medco Health Solutions Inc.: http://www.medco.com