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Express Scripts Holding Company’s (ESRX - Analyst Report) second-quarter 2012 adjusted earnings of 88 cents per share beat the Zacks Consensus Estimate of 82 cents and increased 23.9% from the year-ago period. Higher revenues boosted earnings in the second-quarter of 2012.

On a reported basis (including special items), earnings declined 68.2% to 21 cents in the second quarter of 2012. The decline was primarily due to the expenses associated with Express Script’s purchase of Medco Health Solutions in April 2012.

Revenues jumped 143.7% in the reported quarter to $27.69 billion, beating the Zacks Consensus Estimate of $26.4 billion. The massive jump in revenues was attributable to the expanded product portfolio at Express Scripts due to the acquisition of Medco Health Solutions.

Adjusted gross profit jumped 165% to $2.2 billion in the reported quarter, boosted by the inclusion of results of the erstwhile Medco Health Solutions. Adjusted selling, general and administrative expenses climbed 282.7% to $744.8 million.

Total adjusted claims at Express Scripts for the reported quarter came in at 404.3 million as opposed to 185.7 million in the second quarter of 2011.

2012 Earnings Outlook Upped

Apart from releasing second-quarter results, Express Scripts upped its adjusted earnings guidance for 2012. The company now expects adjusted earnings for 2012 in the range of $3.60-$3.75 per share (previous guidance: $3.36 – $3.66 per share). The Zacks Consensus Estimate currently stands at $3.67 per share.

Impressive operating performance, increased generic utilization and the accelerated realization of savings led Express Scripts to increase its projected earnings range for 2012. Express Scripts expects to generate savings of $1 billion on complete integration of Medco Health’s operations into Express Scripts’ business. Total adjusted claims for 2012 are expected to be $1.4 billion.

Our Take

We are impressed by the favorable resolution of Express Scripts’ long-standing dispute with retail giant Walgreen (WAG - Analyst Report). In July 2012, the companies inked a multi-year pharmacy network agreement. Express Scripts will extend its services to over 64,000 pharmacies across the US following the inclusion of Walgreen in Express Script’s network. Per the new agreement, Walgreen will start filling prescriptions from Express Scripts’ customers from September 15, 2012. The favorable resolution has removed a major overhang on Express Scripts’ shares.

Express Scripts was also in the news recently when it inked a three-year supply deal with AmerisourceBergen Corporation (ABC - Analyst Report). The deal will take effect from October 1, 2012. Per the terms of the deal, AmerisourceBergen will supply Express Scripts with pharmaceuticals worth $18.5 billion annually. The decision follows Express Scripts’ purchase of Medco Health Solutions.

We note that Express Scripts has decided not to renew its pharmaceutical distribution agreement with Cardinal Health (CAH - Analyst Report) following its expiry on September 30, 2012.

We currently have a Neutral recommendation on Express Scripts. The stock carries a Zacks #3 Rank (Hold) in the short run.

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