Medco Integration Issues Mar an Otherwise Solid Q3 for Express Scripts

The largest pharmacy-benefits management company in the world, Express Scripts (NASDAQ: ESRX  ) , released its third-quarter earnings results after the closing bell, and shareholders seem none too thrilled with what's been delivered.

For the quarter, Express Scripts produced $25.92 billion in revenue, a 3.2% decline from the year-ago period, as adjusted EPS improved modestly to $1.08, from $1.03 in the previous period, and adjusted claims from continuing operations fell 9%, to 358.1 million, due to UnitedHealth Group in-sourcing all of its PBM activities. Comparatively, revenue topped the consensus estimates by a tad more than $900 million, while EPS was right in-line with estimates.

There were a number of factors that aided Express Scripts in meeting Wall Street's quarterly EPS forecast of $1.08, including the company repurchasing 11.6 million shares of its common stock during the quarter. (If you recall, share repurchases reduce the number of shares outstanding, which inflates EPS.) The company was also helped by a reduction in its income-tax rate, which allowed it to boost its full-year EPS forecast by $0.04, to a new range of $4.30-$4.34, representing year-on-year growth of 15%-16%. The current EPS consensus for the full year is $4.31.

Perhaps nothing was more crucial to Express Scripts' bottom line than another improvement in generic-drug utilization. For the quarter, generic fills accounted for 80.8% of all scripts, a 200-basis-point improvement over the year-ago quarter. Generics offer beefier margins for PBM's like Express Scripts, which is a big reason revenue only declined 3.2% despite a 9% drop in claims.

Net cash flow improvement of 31%, to $1 billion, is also another highlight of its results. Cash flow generation is going to be a key to reducing Express Script's long-term debt, which stood at $13.48 billion at of the end of Q3. At this time last year, Express Scripts boasted $14.98 billion in long-term debt.

However, Express Scripts' ongoing integration issues with Medco Health Solutions continue to plague its results. The company notes that delays in non-client integration activities, which includes merging all of Medco's legacy payment cycles with those of Express Scripts, is causing it to adjust its full-year free cash flow projections down by $500 million at the midpoint, to a new range of $4 billion to $4.5 billion.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2698887, ~/Articles/ArticleHandler.aspx, 10/22/2014 6:09:40 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement