The company saw quarterly net interest expense on the consolidated income statement increase to $131 million, reflecting additional interest from increased debt position due to the merger, as well as balance sheet restructuring.

Tax rate was 39.6%, in line with expectations, and share count was 1.47 billion shares.

- Adjusted EPS rose 18.3% to 55 cents per share, up from 46 cents per share in 2007, and at the high end of guidance. The company produced solidly robust earnings year over year despite the additional financing costs. GAAP EPS rose 17.4% to 51 cents per share compared to 43 cents per share in the first quarter of 2007.
- The company generated $346 million in free cash flow.
- Net capital expenditures were $395 million, which reflected proceeds from sale leaseback transactions of $5 million netted against the gross capital spend.

In November the company had entered into a $2.3 billion accelerated share repurchase agreement, which was expected to be completed during the first quarter.

The company did just that and while the outflow of cash happened entirely during the fourth quarter, it received an additional 5.7 million shares in the first quarter to complete the transaction. The company has placed those shares into treasury account.

In Minute Clinic, the company treated 300,000 patients and customer feedback on clinics continues to be highly positive.

- Pharmacy comparable store sales were 3.7%. That included approximately 450 basis points of negative impact from new generics, so adjusting for new generics, the company would have reported 8.2% pharmacy comparative store sales.
- The flu had a negligible impact on pharmacy comparable store sales. Generic dispensing rate in retail segment was 66.6%, up from 61.7% last year. Pharmacy comparisons were influenced negatively by the deceleration of Med D growth compared to last year when it was still ramping up. In addition, the switch of Zyrtec from a prescription to an over-the-counter product obviously reduced prescriptions filled.
- On a positive note, however, the company had a private label over-the-counter version immediately available upon the switch, so the overall impact of the Zyrtec change, while negative to pharmacy, was beneficial to front-store sales and especially margins.
- Front-end business continued to demonstrate healthy growth in both customer traffic counts and average dollars spent per transaction. Front store comparable store sales increased 4.3%. That included a benefit from the Easter shift of approximately 115 basis points.

For the combined March/April period, front-store comparable store sales were 3.4%.

In March, front-store comparable store sales were 6.5% and in April, front-store comparable store sales were minus 0.2% due to the impact of the earlier Easter.

- The company continues to grow share in the key front-store categories that make up the vast majority of sales, OTC, beauty, private label and digital photo. In fact, the company experienced share gains versus food, drug, and mass competitors in categories representing more than 90% of front-store sales volume.
- In addition, private label business continues to grow across store base. Private label made up 14.8% of total front-store sales. That is up 90 basis points versus the prior year.

- In both the front-store and the pharmacy, comparable store sales in the former Osco Save-on stores acquired in 2006 continued to outpace core stores.
- Front-store margins continued to improve, driven by the use of extra care loyalty program to drive more profitable sales. More than 65% of front-end sales across the store base currently use the extra care card.

The company opened 94 stores, including 41 new and 53 relocations.

The company closed 19 others, so added 22 net new CVS pharmacy stores.

Second Quarter 2008 Outlook

- The company expects revenue growth for the total company to be in the range of 3% to 5%.
- The company expects PBM revenue to be up in the second quarter and expects retail revenues to be up 5% to 7%. On the retail side, the company had the positive impact of the Easter shift in the first quarter so in the second quarter, the company gets the reverse effect of that in front-store sales.
- The company anticipates second quarter adjusted EPS of between 59 cents per share and 61 cents per share, up from last year’s 51 cents per share. That equates to adjusted EPS growth of 16% to 20%. GAAP EPS is expected to be in the range of 55 cents per share to 57 cents per share, up from last year’s 47 cents per share.

Fiscal 2008 Outlook

- For the total company, the company expects revenue growth of about 13% to 16% for the full year, after inter-company eliminations of approximately $1 billion per quarter. For both segments, generics will play a role in dampening top line growth.
- For the PBM segment on a comparable basis, the company expects revenues to be about flat with 2007. This is an improved outlook and reflects some contract wins starting later this year, as well as a higher level of price inflation than originally anticipated. But the company expects reported revenue growth of over 20% for the year since the merger closed in late March of 2007. Remember, this revenue estimate also includes an impact of approximately $2 billion year over year from the change in PharmaCare’s revenue recognition methodology from the net to the gross basis and for the full year as opposed to a partial year.
- For the retail segment, the company expects revenue growth of between 7% and 10% for the year. Same-store sales are expected to be in the range of 4% to 7% for the retail segment for the year.

- For the total company, gross profit margins are still expected to be down due to the mix impact as the company averages in a full 12 months of Caremark. However, gross margins are expected to increase by 25 to 50 basis points for the PBM segment on a comparable basis despite the gross-up of the PharmaCare contracts. The company expects gross margins for the retail segment to increase 50 to 75 basis points. In part, that is due to the delay in implementation of the Medicaid A&P cuts.
- Gross margin will be helped by purchasing synergies. The company still expects more than $700 million in synergies in 2008, much of which is from purchasing.

- As for expenses, the company expects total company operating expenses as a percentage of revenue to improve. That is largely due to mix. Total operating expenses as a percentage of sales for the PBM segment on a comparable basis may be in the neighborhood of last year’s numbers as general good housekeeping to be directionally offset by the 2008 start-up costs of all that new business. The retail segment has no such headwind and the company still expects it to show improvement.
- The company expects total consolidated amortization for 2008 of approximately $400 million and depreciation of about $850 million. All of that again leads to solid improvement in operating profit margins for the total company, as well as for each segment. The company could nicely exceed 6.5%, current operating margin high water mark achieved back in the year 2000.

- The company forecasts net interest of about $475 million to $500 million and a tax rate approaching 40%. The company expects approximately 1.49 billion weighted average shares for the year and no further share repurchases are included in this guidance.
- The company is raising the low-end of full year guidance range by 1 cent per share. The company currently expects to deliver adjusted EPS of $2.44 to $2.50 and GAAP EPS of $2.27 to $2.33. That represents growth of 18% to 21% on both an adjusted and GAAP EPS basis.
- Net capital expenditures are expected to be in the range of $1.3 billion to $1.4 billion for 2008. Free cash flow is expected to be around $3 billion, driven largely by the strong earnings growth expected in 2008.
- The company expects to add approximately 100 clinics in 2008 and end the year with between 550 and 600 clinics compared to the approximately 700 previously forecast.