Express Scripts Inc.’s (ESRX) first quarter 2011 earnings of 66 cents per share (excluding special items) missed the Zacks Consensus Estimate of 70 cents but were well above the year-ago adjusted earnings of 55 cents per share. Higher earnings came on the back of reduced selling, general and administrative expenses and a lower share count as compared with the year-ago quarter.
Quarterly Details
First quarter revenues of $11.09 billion fell short of the Zacks Consensus Estimate of $11.52 billion. Revenues were almost flat year over year.
We note that first quarter results were affected by seasonality of client renewals, lower claims volume and implementation costs.
Adjusted gross profit for the quarter improved 7.9% to $774.0 million, and adjusted selling, general and administrative expenses decreased 4.9% to $182.9 million.
Total claims at Express Scripts for the reported quarter came in at 162.0 million as against 162.4 million in the first 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 Emerging Market claims. Total adjusted claims (thrice the home delivery claims since such claims are typically 90-day claims) of 186.1 million were consistent with the year-ago adjusted claims.
2011 Guidance Reiterated
Express Scripts reaffirmed its earnings projection for 2011. Adjusted earnings are expected between $3.15 and $3.25 per share. The Zacks Consensus Estimate of $3.21 lies within the company’s guidance range.
The company further expects total adjusted claims to lie between 750 million and 780 million in 2011.
Cash flow from operations is expected to range from $2.2 billion to $2.4 billion.
Our Take
Currently we have a Neutral recommendation on Express Scripts, which is supported by a Zacks #3 Rank (short-term Hold rating).
We view the company’s acquisition of WellPoint Inc.'s (WLP) NextRx pharmacy benefit management business (PBM) for $4.68 billion in 2009 as a smart strategic move. The aligned business model should provide significant opportunities for driving growth. The deal includes a 10-year agreement under which Express Scripts will provide PBM services, including home delivery and specialty pharmacy services, to members of the affiliated health plans of WellPoint. The dispensing of services to NextRx members should allow Express Scripts to increase generic and mail order penetration, which should help drive earnings.
EXPRESS SCRIPTS (ESRX): Free Stock Analysis Report
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