WOONSOCKET, Rhode Island — CVS Health Corp. reported better-than-expected third-quarter earnings Tuesday as increased use of specialty drugs helped offset missing sales of tobacco products, which the company stopped selling this fall.
CVS Health runs the nation's second-largest drugstore chain with more than 7,700 locations and one of the largest pharmacy benefits management, or PBM, businesses.
The company's net income fell to $948 million, or 81 cents per share, from $1.25 billion, or $1.02 per share a year earlier. Earnings, adjusted to extinguish debt and for amortization costs, were $1.15 per share.
The results exceeded Wall Street expectations, with the average estimate of analysts surveyed by Zacks Investment Research at $1.14 per share.
Revenue rose to $35.02 billion in the period, also surpassing Street forecasts. Analysts expected $34.65 billion, according to Zacks.
Revenue from its PBM side increased 16 percent, and operating profit from that segment increased 7.3 percent, helped by new business and specialty drug growth.
Specialty drugs are very expensive, usually injected, drugs for complex chronic health conditions — a category that is driving overall spending on medications. CVS has started a new program called Specialty Connect that allows customers with these prescriptions to either pick them up at pharmacies or through the mail.
CVS said revenue from its retail pharmacy business increased 3 percent and was negatively impacted by the loss of tobacco sales. The company said missing sales of cigarettes and other items smokers purchase at stores hurt earnings by 3 cents per share. CVS said the full-year impact of missing tobacco products would reduce earnings by 7 to 8 cents per share.
CVS Health gained national attention in February after it promised to phase out sales of tobacco products from its stores. Company leaders said tobacco has no place in a health care setting, and stores phased out the products by late September.
The company narrowed its 2014 adjusted earnings guidance to between $4.47 and $4.50, from its previous forecast of $4.43 to $4.51, excluding the 27 cents-per-share loss on early extinguishment of debt.
Analysts expect, on average, earnings of $4.49 per share, according to FactSet.
For the current quarter ending in December, CVS Caremark expects its per-share earnings to range from $1.18 to $1.21. Analysts surveyed by Zacks had forecast adjusted earnings per share of $1.21.
CVS shares slipped 52 cents to $85.60 in midday trading.
CVS shares have increased 20 percent since the beginning of the year, while the Standard & Poor's 500 index has risen 9 percent. The stock has risen 38 percent in the last 12 months.
This story contains elements generated by Automated Insights (http://www.automatedinsights.com/ap ) using data from Zacks Investment Research. CVS stock research report from Zacks: http://www.zacks.com/ap/CVS .
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