NEW YORK (Dow Jones) – CVS Caremark Corp.’s (CVS) fourth-quarter earnings rose 10% amid stronger sales at its pharmacy businesses while the hybrid drug-store pharmacy benefit manager’s chief executive expressed optimism about the 2011 pharmacy benefits management selling season.

At its pharmacy-benefits business, revenue rose 15% despite a 5.6% drop in claims processed, mostly owing to the termination of two big health-plan clients at the start of 2009 and three fewer reporting days in the period.

“We’re seeing a positive response heading into the 2011 PBM selling season,” said Chief Executive Thomas Ryan on the company’s fourth-quarter conference call.

In addition, Ryan said roughly $500 million to $550 million of 2010 PBM contracts won’t be decided for “a while.”

That business segment has been under scrutiny since late last year, when CVS said the Caremark business lost a net $4.8 billion in 2010 contracts. At that time, CVS also said Caremark’s operating profit could decline by 10% to 12% this year. It rose just 3% in the fourth quarter on falling margins.

CVS said it continues to expect operating profit in the pharmacy benefit business to decline 10% to 12%, while operating profit its retail business is expected to grow in the 13% to 16% range in 2010.

“I don’t see any systemic issue that could hold the company back,” said Per Lofberg, president of Caremark, about the company’s PBM business. Lofberg was named Caremark’s new president in December. Lofberg said he plans to be “heavily engaged” with the business development process.

Chief Executive Tom Ryan has repeatedly expressed confidence in the PBM business and the company’s combined business model.

CVS’s same-store pharmacy sales, which grew 7.3% in the fourth quarter, indicate the company is taking share from some competitors, said Scott Mushkin, analyst at Jefferies & Co.

That’s good news compared with the 1.2% decline in January same-store pharmacy sales Walgreen Co. (WAG) reported and the 2.1% drop Rite Aid Corp. (RAD) reported for January.

Meanwhile, CVS reported a profit of $1.05 billion, or 74 cents a share, up from $953 million, or 65 cents a share, a year earlier. Excluding charges and a tax benefit in the latest quarter, earnings rose to 78 cents a share from 70 cents.

Revenue increased 7% to $25.8 billion, including a 4.5% gain at the retail business on a solid 4.9% increase in same-store sales.

Analysts polled by Thomson Reuters most recently forecast earnings of 78 cents a share on revenue of $26.22 billion.

Gross margin was flat at 21.6%.

So-called front-of-the-store sales edged up 0.3%. The company said the generic dispensing rate increased by 2.2 percentage point to 68.9%.

Mushkin also sees gains in the company’s Maintenance Choice results as a positive. The company has been looking to Maintenance Choice, which allows customers of Caremark’s pharmacy-benefits business to pick up 90-day prescriptions at CVS stores instead of mail, for the same price, as a growth driver. Ryan said Maintenance Choice has over 470 clients and he expects that number to “grow even more.”

For 2010, the company expects adjusted earnings from continuing operations of $2.74 to $2.84 a share.

For the first quarter, CVS sees 3% to 4% revenue growth on earnings of 53 to 55 cents a share. On adjusted earnings from continuing operations basis, the company forecasts of 57 cents to 59 cents a

Shares were recently up 4.9% to $32.59. The stock is up 7% in the past year.

-By Veronica Dagher, Dow Jones Newswires; 212-416-2261; veronica.dagher@dowjones.com

If you enjoyed this post then Subscribe to Savvy Investor via RSS