The weak forecast was a drag on shares of CVS Caremark, which also reported lower revenue and net income in the fourth quarter.
The outlook was a surprise as analysts had expected the company would begin to see improved results at Caremark, a nearly $27 billion acquisition that has continued to weigh on the Woonsocket, R.I., company.
CVS Caremark warned that other issues affecting Caremark's results include lower payments from pharmacy benefits program for federal employees, less profitable contract renewals, and expenses related to cost cuts. It said its adjusted profit per prescription will also continue to decline, moving closer to the levels reported by Caremark's competitors.
Shares of the company fell $1.73, or 5 percent, to $32.92.
Incoming CEO Larry Merlo said during a conference call that profits at the Caremark unit will decrease for the second consecutive year as it begins its 12-year relationship with Aetna Inc. On Jan. 1, Caremark began administering Aetna's retail pharmacies and managing purchasing, inventory and prescription filling for Aetna's mail order and specialty businesses. The deal is expected to boost the company's revenue by $8.2 billion in 2011 alone, and Caremark will handle about 150 million adjusted prescriptions from Aetna this year. However, those prescriptions are less profitable than Caremark's typical business.
Merlo said he is committed to making the CVS-Caremark combination is "financially successful for our shareholders." CVS and Caremark united in 2007, saying that together, they would be able to use their size to reduce drug costs for health plan members and clients while improving retail sales. But the company - now the second-largest drugstore chain and the third-largest PBM company - has struggled at times, and some investors remain skeptical of the business model. The company also faces continued regulatory scrutiny.
CVS Caremark's fourth-quarter profit fell 2 percent to $1.03 billion from $1.05 billion, but because the company has fewer shares on the market than it did a year ago, its per-share income grew to 75 cents from 74 cents. Revenue fell to $24.77 billion from $25.82 billion, reflecting a 10 percent decline in Caremark's revenue due to client losses and fewer Medicare prescription drug program members.
Excluding one-time items, the company earned 80 cents per share. Analysts expected earnings of 79 cents a share on $24.98 billion in revenue.
Looking ahead to the first quarter, the company expects to earn 54 to 56 cents per share, below analysts' estimate of 62 cents per share. Revenue is forecast to grow 7 to 9.5 percent, suggesting a total of $25.42 billion to $26.02 billion. Analysts expect $25.82 billion.
For 2011, the company expects adjusted earnings from continuing operations between $2.72 and $2.82 per share, while analysts expect $2.89 per share, according to FactSet.
The company said it expects Caremark's profit to grow in 2012. The Aetna deal is expected to add at least 5 cents per share to its profit that year, and at least 10 cents per share in 2013. CVS said it can still reach its five-year profit and growth targets despite the setbacks for Caremark.
Merlo also said he wants to enhance returns for investors with greater dividends and stock repurchases. Last month the company boosted its quarterly dividend by 43 percent, to 12.5 cents.
For the full year, the company's net income fell to $3.44 billion, or $2.49 per share, from $3.71 billion, or $2.55 per share, in 2009. Revenue declined to $96.41 billion from $98.73 billion.
Associated Press Writer Damian Troise contributed to this story from New York.