Express Scripts (ESRX) Posts In-Line Earnings, Lags Revenues (Revised)

Pharmacy benefit manager Express Scripts Holding Company (NASDAQ:ESRX) posted second-quarter 2016 earnings per share (excluding special items) of $1.57, in line with the Zacks Consensus Estimate but higher than the year-ago figure of $1.44.

On a reported basis, earnings came in at $1.13 per share, up from the year-ago figure of 88 cents.

Quarterly Highlights

Revenues of $25.2 billion missed the Zacks Consensus Estimate of $25.5 billion and were also down from the year-ago figure of $25.4 billion.

Adjusted gross profit was up 0.9% to $2.2 billion. Adjusted selling, general and administrative expenses were roughly flat at $496.6 million.

Total adjusted claims amounted to 315.3 million, down 1.8% year over year.

In Jul 2016, the company issued senior notes – $1,000.0 million of 3% senior notes due Jul 2023, $1,500.0 million principal amount of 3.4% senior notes due Mar 2027 and $1,500.0 million aggregate principal amount of 4.8% senior notes due Jul 2046. The net proceeds will be used to repay a portion of its 2015 two-year term loan to complete a tender offer for its 2.650% senior notes due 2017 and to complete a tender offer for a portion of each of the 7.125% senior notes due 2018 issued by Medco Health Solution., along with the 7.250% senior notes due 2019 issued by the company. During the remainder of the third quarter, Express Scripts plans to use the remaining proceeds to redeem further debt and for general corporate purposes.

Outlook

Express Scripts narrowed its outlook for 2016. The company now anticipates earnings in the range of $6.33 to $6.43 per share versus the previous projection of $6.31–$6.43. The pre-earnings Zacks Consensus Estimate of $6.35 is well within the guided range. The company estimates adjusted claims for 2016 in the range of 1,260 million to 1,290 million compared with the previous range of 1,255–1,295 million. Claims volume will be determined by retention rate, organic growth and new sales.

For the third quarter, Express Scripts expects earnings in the range of $1.72 to $1.76 per share, while adjusted claims are projected to be 311 million to 321 million.

EXPRESS SCRIPTS Price and EPS Surprise

EXPRESS SCRIPTS Price and EPS Surprise | EXPRESS SCRIPTS Quote

Our Take

Express Scripts reported in-line earnings but missed on revenues. The company did not provide further details on the status of its contract with Anthem (NYSE:ANTM) . The latter had filed a lawsuit against Express Scripts in order to recover damages for pharmacy pricing, which was higher than the competitive benchmark pricing. Anthem is also seeking to recover damages related to operational issues and a declaration of its right to terminate the contract with Express Scripts. The companies had signed the agreement in 2009, which allowed a periodic pricing review through its tenure (expires in 2019). Anthem alleged that it has been trying to negotiate the terms of the contract with Express Scripts, but failed to do so as the latter was not keen enough. As per Anthem, it is receiving competitive benchmark pricing and is entitled to more favorable terms.

Meanwhile, growth in the second half of 2016 should primarily be driven by higher utilization of the company’s cost saving programs along with generic launches, supply chain initiatives and higher Medicare Part D revenue.

Express Scripts currently carries a Zacks Rank #2 (Buy). A couple of other well-placed stocks in the health care sector are Gilead Sciences (NASDAQ:GILD) and Johnson & Johnson (NYSE:JNJ) , both carrying a Zacks Rank #2 (Buy).

(We are reissuing this article to correct a mistake. The original article, issued on Jul 26 should no longer be relied upon.)