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Express Scripts Holding Company (ESRX - Analyst Report) posted second quarter 2013 earnings per share (excluding special items) of $1.12, up from 87 cents reported in the year-ago quarter. The Zacks Consensus Estimate was $1.10.

Excluding special items but including amortization expense, earnings per share came in at 75 cents compared to 51 cents in the year-ago quarter.

On a reported basis (including one-time items), earnings per share came in at 67 cents, up from 18 cents in the year-ago quarter.

Quarter in Detail

Revenues were down 3.9% year over year in the reported quarter to $26.4 billion but surpassed the Zacks Consensus Estimate of $25.6 billion. The decrease in revenues was attributed to lower claims volume owing to the transition of claims of UnitedHealthcare Group.

Express Scripts realized revenues of $108.2 million in the second quarter related to a large client primarily due to the structure of the contract.

The company expects the trend to continue in the forthcoming quarters as well.

Adjusted gross profit was up 2.6% to $2.2 billion in the reported quarter. Gross profit was boosted by the inclusion of results of the erstwhile Medco Health Solutions, which led to improved operating performance and increased generic utilization.

Adjusted selling, general and administrative expenses declined 24.7% to $544.9 million.

Total adjusted claims at Express Scripts for the reported quarter came in at $369.4 million, down 7.2% due to an expected roll-off of claims from UnitedHealthcare Group.

Cash used in operating activities came in at $156.2 million compared to $963.4 million of cash generated in the previous quarter. The outflow of cash was driven by the timing of payments and receipts at quarter-end related to the legacy Medco business.

Express Scripts repurchased 8.2 million shares for $501.0 million and still has 62.9 million shares remaining under its current share repurchase program. We believe the buyback program highlights the company’s commitment to create value for shareholders.

2013 Earnings Outlook Upped

Apart from announcing second quarter 2013 results, Express Scripts upped its earnings guidance for 2013. The company now expects adjusted earnings in the range of $4.26 - $4.34 per share in 2013, up from the earlier projected range of $4.23 - $4.33 per share.

The new projected range represents year- over-year growth of 14% – 16% compared to the earlier projected range of 13% – 16%.

The Zacks Consensus Estimate currently stands at $4.30 per share, at the mid-point of the new guidance range.

For the third quarter of 2013, Express Scripts expects adjusted earnings in the range of $1.05–$1.09 per share. The Zacks Consensus Estimate for the third quarter is $1.09, at the higher end of the company’s estimate.

We are encouraged by the second quarter results and subsequent increase in guidance. However, the introduction of insurance exchanges, additional costly regulations, escalation of brand drug prices and increased specialty drug utilization loom large on the company’s business in the long run.

Concurrent with the second quarter results, Express Scripts announced that it is on the lookout for a new chief financial officer (CFO) as the current CFO Jeff Hall will quit his post. Meanwhile, vice president Mathew Harper will serve as the interim CFO.

Currently, Express Scripts carries a Zacks Rank #2 (Buy). Other stocks which look attractive include Omnicare Inc. (OCR - Snapshot Report), Healthways Inc. (HWAY - Analyst Report) and MedAssets, Inc. (MDAS - Snapshot Report). While MedAssets carries a Zacks Rank #1 (Strong Buy), Omnicare and Healthways carry a Zacks Rank #2 (Buy).

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