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CVS Caremark's 2nd quarter profit increases 11 per cent, drugstore chain raises forecast

This March 25, 2014 photo shows a CVS store in Philadelphia. CVS Caremark reports quarterly financial results on Tuesday, Aug. 5, 2014. (AP Photo/Matt Rourke)

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This March 25, 2014 photo shows a CVS store in Philadelphia. CVS Caremark reports quarterly financial results on Tuesday, Aug. 5, 2014. (AP Photo/Matt Rourke)

CVS Caremark's second-quarter earnings jumped 11 per cent to top expectations, as specialty drug use helped fuel growth for the drugstore chain and pharmacy benefits manager.

The Woonsocket, Rhode Island, company also said Tuesday that it was raising its earnings forecast for 2014.

CVS Caremark Corp. runs the nation's second-largest drugstore chain with more than 7,700 locations and one of the largest pharmacy benefits management, or PBM, businesses. Revenue from its PBM side jumped 16 per cent, and operating profit from that segment soared 30 per cent, helped by new business and specialty drug growth.

Specialty drugs are very expensive, usually injected, drugs for complex chronic health conditions — a category that is driving overall spending on medications. CVS Caremark has started a new program called Specialty Connect that allows customers with these prescriptions to either pick them up at pharmacies or through the mail.

CVS Caremark didn't detail the program's impact on its results, but CEO Larry Merlo said it gives the company a chance to "not just manage the specialty drug but manage the specialty patient." That can lead to better cost control and more business from those patients.

Overall, CVS Caremark earned $1.25 billion, or $1.06 per share, in the quarter that ended June 30. That's up from $1.12 billion, or 91 cents per share, in the same quarter a year ago.

Earnings, adjusted for amortization costs, came to $1.13 per share. The average estimate of analysts surveyed by Zacks Investment Research was for earnings of $1.10 per share.

The company said revenue climbed 11 per cent to $34.6 billion from $31.25 billion in the same quarter a year ago. That also beat the average analyst expectation of $33.42 billion.

CVS Caremark said revenue from its established drugstores climbed 3.3 per cent in the quarter despite a consumer that executives described as "a cautious purchaser of products" and a hit from its decision earlier this year to phase out tobacco sales from its stores by this fall. The company has said it expected to take an annual revenue hit of about $2 billion from the latter move, which it is making due to its increased focus on health care.

CVS Caremark now expects 2014 adjusted earnings to range between $4.43 and $4.51 per share, compared to its previous forecast for earnings of $4.36 to $4.50 per share.

Analysts expect $4.46 per share, on average, according to FactSet.

Shares of CVS Caremark climbed 20 cents to $77.57 in midday trading Tuesday while the Standard & Poor's 500 index slipped. The stock had climbed about 8 per cent to $77.37 since the beginning of the year, as of Monday's close.

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