Medco Health Solutions Inc., a pharmacy benefits management company, said Tuesday its third-quarter net income rose 33 percent, helped by a tax benefit and the impact of new clients.
The latest results included an income-tax benefit of $25.7 million, or 9 cents per share, partially offset by $4.4 million in Medicare-related expenses. The acquisition of the Accredo Health business reduced earnings by 1 cent per share.
Medco shares fell $6.70, or 11.9 percent, to close at $49.80 on the New York Stock Exchange. They have traded from $32.66 to $57.33 in the past 52 weeks.
Analyst Robert M. Willoughby at Banc of America Securities said the reaction was expected because Medco's results "paled in comparison to those of Express Scripts." The rival last week reported third-quarter profit rose 64 percent.
Analyst Michael J. Maguire at Susquehanna Financial Group said he thought the quarter was "below some aggressive expectations."
However, "Looking forward, I think we're overreacting here," Maguire said, noting that the company said 2006 earnings are to be 22 percent to 30 percent greater than in 2005.
Excluding 9 cents per share in amortization of intangible assets, earnings were 62 cents per share in the quarter. Analysts surveyed by Thomson Financial had predicted earnings of 60 cents per share.
Medco's net revenue rose 7.2 percent to $9.3 billion, including about $150 million of Accredo sales. The increase primarily reflects volume from new clients and higher prices on brand-name drugs, Franklin Lakes-based Medco said.
Still, higher generic dispensing rates resulted in a reduction of more than $430 million in sales in the latest quarter versus a year ago.
Gross margin expanded to 5 percent from 4.9 percent a year ago, benefiting from the addition of Accredo's higher-margin business, service margin improvements and the significant growth in generic use.
"We are growing our revenue base, having won over $3 billion in new clients based on annualized 2005 net revenues, and we have already won an additional $1.4 billion in annualized new business for 2006," said David B. Snow Jr., Medco chairman, president and chief executive.
Medco projected 2006 earnings will be $2.18 to $2.30 a share. Excluding the amortization of intangible assets, the range would be $2.52 to $2.64.
For the first nine months of the year, Medco profit was $425.3 million, or $1.48 a share, up from $348.9 million, or $1.27 a share, in the 2004 period. Sales were up 2.4 percent to $27.1 billion.
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