When is coming out of a recession potentially a bad thing? When you're in the business of saving your customers money. As customers loosen their purse strings a little, they may be less interested in your services.
So far though, pharmacy benefits manager Medco Health Solutions (NYSE: MHS ) seems to be doing pretty well, and the future is looking pretty healthy, too.
In the third quarter, earnings, excluding charges related to its spinoff from Merck (NYSE: MRK ) six years ago, were up 19% year over year. Revenue was up only 17.8%, but more trickled to the bottom line because Medco made more from each prescription as members increased their usage of generic drugs, from which Medco gets a higher margin.
The only place where Medco seems to have slipped a little in the quarter was in its mail-order business, where volume was down 2.3%. It would be better to see the company capture all the revenue from a prescription rather than split it with retail pharmacies run by Walgreen (NYSE: WAG ) , Wal-Mart (NYSE: WMT ) , or, worse, rival CVS Caremark (NYSE: CVS ) . The good news is that the decrease was entirely because of members filling fewer prescriptions for high-priced brand-name drugs -- the recession strikes again; mail-order prescriptions for generic drugs were up 1.4%.
Next year looks just as good for Medco. As rival Express Scripts (Nasdaq: ESRX ) prepares to grow through an acquisition of WellPoint's (NYSE: WLP ) pharmaceutical business management division, NextRx, Medco is growing the old-fashioned way. The company has kept 99% of its customers for next year while signing up $4 billion worth of new business.
The new business may be a forecast of how companies think we'll have a slow recovery, but it could be good for investors because pharmacy benefits managers can help those companies lower their expenses. In either case, it's great news for Medco and its investors.
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