Express Scripts Holding Co (ESRX) on Tuesday raised its full-year earnings forecast, citing a strong second quarter, increased use of more profitable generic drugs and sooner-than-expected cost savings from its $29 billion acquisition of rival pharmacy benefit manager Medco Health Solutions.
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Express Scripts shares, which were already up about 25 percent this year, rose more than 7 percent.
Express, now the clear leader in managing drug benefits for Americans, said it now expects adjusted 2012 earnings of $3.60 to $3.75 per share, up from its prior view of $3.36 to $3.66.
Wall Street on average was estimating $3.53 per share, according to Thomson Reuters I/B/E/S.
"The old guidance had been conservative and they've been saying ever since the deal that integration is going better than expected and the synergies are coming faster than expected and that's what drove the upside in the quarter," said Gabelli & Co analyst Jeff Jonas.
"The debt they issued to fund the deal came with very attractive rates and that's also helping earnings," he added.
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The company, in its first quarter since completing the Medco deal in early April, reported higher than expected second quarter profit.
Excluding items such as acquisition related costs, Express said it had adjusted earnings of 88 cents per share, exceeding analysts' average expectations by 6 cents, according to Thomson Reuters I/B/E/S.
Net profit was $170.9 million, or 21 cents per share, down from a year-ago profit of $334.2 million, or 66 cents per share.
Revenue in the first quarterly results that combine Express and Medco sales totaled $27.69 billion, topping Wall Street estimates of $26.57 billion.
"Obviously this is a banner quarter," said Edward Jones analyst Judson Clark. "This quarter's results point to a stronger long-term story as well. They beat on sales, beat on earnings and raised guidance."
"The company has had a strong track record of acquisition integration and we clearly see that in their raised guidance," Clark added.
Express Scripts is expected to provide more details on the integration and perhaps on its renewed agreement with pharmacy chain Walgreen Co on a conference call with industry analysts on Wednesday. It said it still expects to realize cost savings from Medco synergies of $1 billion once fully integrated.
"We are fully under way with the integration process," Chief Executive George Paz said in a statement.
The company previously said integration would likely be complete in the first half of 2014.
Rival CVS Caremark Corp earlier on Tuesday reported higher quarterly profit and raised its full year forecast in part due to business it gained from Walgreen while the pharmacy chain was not doing business with Express Scripts.
A disagreement over contract terms led Walgreen to stop filling prescriptions for Express Scripts patients at the beginning of 2012. After resolving their dispute last month, the largest U.S. drug store chain will resume doing business with Express Scripts as of Sept. 15.
But CVS has said it expects to retain at least 50 percent of the prescription business in gained from Walgreen during the dispute with Express Scripts.
Express said it has so far achieved a customer retention rate for its combined business exceeding 95 percent.
"That's pretty solid given all the uncertainty over the antitrust review and now integration," Gabelli's Jonas said of the company's retention rate.
The Medco deal closed in April after a lengthy and contentious review of potential antitrust issues over the combination of two of the industry's three biggest players.
The overall fill rate for generic medicines rose to 77.8 percent from 74 percent a year ago.
Cheaper generic drugs carry a higher profit margin than more expensive branded medicines, and companies such as Express Scripts are always trying to drive down costs for customers and raise its own profits through increased use of generics.
Pharmacy benefit managers, or PBMs, administer drug benefits for employers and health plans and run large mail order pharmacies.
Express Scripts shares jumped in extended trading to $60.17 after closing at $56.02 on Nasdaq.