Express Scripts Misses Earnings, Guides Low - Analyst Blog

Express Scripts Holding Company ESRX posted first quarter 2014 earnings per share (excluding special items) of 99 cents, flat with the year-ago quarter. However, the result fell short of the Zacks Consensus Estimate of $1.01.

Excluding special items but including amortization expense, earnings per share came in at 65 cents compared to 62 cents in the year-ago quarter.

Quarter in Detail

Revenues were down 9.0% year over year in the reported quarter to $23.7 billion but marginally surpassed the Zacks Consensus Estimate of $23.5 billion. We note that the expected roll-off of UnitedHealth Group claims was completed by the end of 2013.

The first quarter results were impacted by lower adjusted prescription volume due to severe winter weather, later than expected enrollment in public exchanges (under the Affordable Care Act) and lower net new healthcare reform lives.

Adjusted gross profit was down 7.3% to $1.9 billion in the reported quarter. Adjusted selling, general and administrative expenses declined 5.5% to $506.3 million.

Total adjusted claims at Express Scripts for the reported quarter came in at $320.0 million, down 17.9% from the year-ago quarter.

Cash generated from operating activities came in at $454 million compared to $963.4 million in the year-ago quarter. Express Scripts repurchased 8.0 million shares for $618.2 million.

Earnings Outlook Lowered

Express Scripts lowered its annual guidance for 2014 and the company now expects adjusted earnings in the range of $4.82–$4.94, down from the earlier projected range of $4.88–$5.00. The Zacks Consensus Estimate currently stands at $4.95 per share. The guidance was lowered due to an expected decline in prescription volume.

Express Scripts now expects adjusted prescription volume to be in the range of 1.27 billion – 1.33 billion, down from the earlier anticipated range of $1.30–$1.36 billion. The volume shortfall is primarily attributed to the delay of several client implementations from mid 2014 to Jan 1, 2015. In addition, in-group attrition along with lower net new healthcare reform lives also led to a decline in guidance.

Earnings per share for the second quarter are projected at $1.20–$1.24, short of the Zacks Consensus Estimate of $1.27.

Our Take

We were disappointed by the first quarter results, which missed the Zacks Consensus Estimate and the subsequent lowering of guidance. The decline in prescription volume will adversely impact results in 2014.

Shares of Express Scripts were down 5.56% in after hours trading following the release of results.

Currently, Express Scripts carries a Zacks Rank #2 (Buy). Other stocks that look attractive include Charles River Laboratories CRL, Cardinal Health CAH, and MedAssets MDAS.  Both carry a Zacks Rank #2.