Medco 2Q Net Up 19% On Revenue Gains, Profit View Raised

Medco Health Solutions Inc.'S (MHS) second-quarter earnings rose 19% on strong revenue gains and as strong demand for more profitable, but cheaper, generic drugs continued.

The nation's biggest pharmacy-benefits manager beat analysts' expectations and also boosted its 2009 earnings forecast to $2.76 to $2.81 a share from $2.67 to $2.77.

Chairman and Chief Executive David B. Snow Jr. said he is "confident" in Medco's "continued strong performance" for the rest of 2009, despite the economy's woes.

Medco's results come as mounting unemployment leaves more Americans without insurance and forces some PBMs to adjust their profit forecasts. Still, Medco said in April it was increasing market share.

Medco reported earnings of $312.1 million, or 64 cents a share, up from $262.7 million, or 51 cents a share, a year earlier. Both periods included 5-cent charges related to its 2003 spinoff from Merck & Co. (MRK). Net revenue jumped 17% to $14.93 billion.

Analysts polled by Thomson Reuters were expecting earnings, excluding items, of 65 cents a share on revenue of $14.54 billion.

Gross margin fell to 6.8% from 7.3% on increased retail sales while more-profitable mail-order volume dropped 1.5%. Generic drugs made up what the company called a record 67.3% of filled prescriptions, up 3.6 percentage points. Total prescription volume jumped 14%.

Medco's dominance is expected to face a challenge from Express Scripts Inc. (ESRX), whose acquisition of WellPoint Inc.'s (WLP) drug-benefits business is seen closing by September. The landscape could change further if Aetna Inc. (AET), following WellPoint's example, finds a buyer for its PBM business.

Revenue in the Accredo Health Group, Medco's specialty pharmacy segment, rose 20% as earnings jumped 31%. Specialty pharmacy services can range from providing injectable medications to one-day delivery of prescription medications to a home or office.

Shares closed Tuesday at $51.39 and were inactive premarket. The stock is up 23% in 2009 and 7% from a year earlier.

-By Mike Barris, Dow Jones Newswires; 212-416-2330; [e-mail];