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Pharmacy benefits manager Express Scripts said this afternoon its first-quarter profit fell 18 percent as it worked to close its $29 billion acquisition of competitor Medco.
The north St. Louis County-based company earned $267.8 million, or 55 cents per share, down from $326.5 million, or 61 cents per share, in last year’s first quarter.
Excluding one-time items, it earned 73 cents per share. Analysts forecast earnings of 77 cents per share on $11.47 billion in revenue, according to FactSet.
Revenue climbed 9 percent to $12.13 billion. It filled 192.8 million adjusted prescriptions, up 3.6 percent from a year ago.
Express Scripts Holding Co. completed its acquisition of Medco Health Solutions on April 2. The deal made Express Scripts the largest pharmacy benefits manager by far.
Express Scripts expects the combined company to earn $3.36 to $3.66 per share in 2012, while filling 1.4 billion adjusted prescriptions.
Analysts are expecting a profit of $3.58 per share, on average.
Express Scripts said the deal should be “slightly accretive” while it integrates Medco and forecast a moderate increase in its profit after that process is finished in the first half of 2014. The company expects to create $1 billion in annual savings after it fully integrates Medco into its business.
The company said Medco’s first-quarter profit fell about 26 percent to $245.1 million, or 62 cents per share. Excluding transaction and amortization costs, it said Medco earned 79 cents per share.
Express Scripts shares rose 44 cents to $54.34 Thursday. The stock slid 60 cents to $53.74 in after-hours trading.
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The United States and Europe are urging Iran to use upcoming talks with world powers to ease international worry that it may be aiming to develop nuclear arms.
But Tehran says such concerns are based on “fake evidence” concocted to cause it political and economic harm.
Envoys for the U.S., the EU and Iran spoke Monday at a 189-nation meeting looking for ways to strengthen the Nonproliferation Treaty low interest rate personal loans.
The divide over the Islamic Republic’s nuclear activities threatens the success of both the talks and a meeting between Iran and the U.N. agency trying to probe its atomic secrets.
Here’s an unsettling fact for anyone thinking of ever buying shares in a newly public company: Even if its executives know their internal accounting systems are a wreck, they aren’t required to disclose this until after the company goes public.
It is a lesson that Groupon Inc. shareholders have learned the hard way. Groupon shares fell 17 percent on Monday, after the online coupon company said late last week that it had identified a “material weakness” in its internal controls over financial reporting, as of Dec. 31. The Chicago-based company also revised its fourth-quarter results to show lower revenue and a larger loss, after finding errors in its accounting for customer refunds. At $14.54, the stock now sells for 44 percent less than it did after the first day of trading.
Given that Groupon went public only last November, the latest news raises the question: Didn’t Groupon know before its initial public offering that its controls were weak? A company spokesman, Paul Taaffe, declined to comment. Let’s assume for the moment, though, that its executives did know. Even then, they wouldn’t have had to tell investors beforehand.
That’s because there is no requirement to disclose a control weakness in a company’s IPO prospectus. Groupon would have had no obligation to disclose the problem until it filed its first quarterly or annual report as a public company — which is what it did. Sandbagging IPO investors in this manner is perfectly legal, it turns out.
Sox Hole
The reason lies with a gaping hole in the Sarbanes-Oxley Act, which Congress passed in 2002 in response to the accounting scandals at Enron Corp. and WorldCom Inc. That statute had two main sections related to companies’ internal controls, which are the systems and processes that companies are supposed to have in place to ensure the information they report is accurate. Those provisions apply only to companies that are public already, not ones that have registered for IPOs.
One section, called 302, requires public companies’ top executives to evaluate each quarter whether their disclosure controls and procedures are effective. The other section, known as 404, is better known. It requires public companies in their annual reports to include assessments by management and outside auditors about the effectiveness of their internal controls over financial reporting. Congress left it to the Securities and Exchange Commission to write the rules implementing those provisions.
Here’s where it gets tricky. Groupon reported the weakness in its financial-reporting controls through a Section 302 disclosure, not a Section 404 report. In other words, the problem was serious enough that it amounted to a shortcoming in the company’s overall disclosure controls.
Groupon won’t have to comply with Section 404’s requirements until its second annual report, due next year, under an exemption the SEC passed in 2006 for newly public companies. Likewise, Groupon’s auditor, Ernst & Young LLP, to date has expressed no opinion on the company’s internal controls in its audit reports instant payday loan.
Groupon’s IPO prospectus cautioned that future disclosures about control weaknesses were possible. It also said the company had only “recently filled a number of positions in our senior management and finance and accounting staff.” However, the prospectus made no representation about whether Groupon’s controls were effective at the time. None was required.
An SEC spokeswoman, Judith Burns, confirmed: “There is no requirement to disclose a material weakness in the prospectus.”
She was speaking broadly, not about any specific company.
Perfect Call
Give credit where it’s due: Two writers who made the perfect call on Groupon are Anthony Catanach, an accounting professor at Villanova University, and Edward Ketz, an accounting professor at Pennsylvania State University.
“It is absolutely ludicrous to think that Groupon is anywhere close to having an effective set of internal controls over financial reporting, having done 17 acquisitions in a little over a year,” the pair wrote in an Aug. 24 article on their blog, Grumpy Old Accountants. “When a company expands to 45 countries, grows merchants from 212 to 78,466, and expands its employee base from 37 to 9,625 in only two years, there is little doubt that internal controls are not working somewhere.”
Even before going public, Groupon restated its financial reports in September to correct errors in the way it reported revenue, which slashed 2010 sales to $312.9 million from $713.4 million. That alone should have flagged to investors that Groupon’s controls were lacking. Nonetheless, the stock market this week acted like it was surprised.
The debacle at Groupon understandably has drawn comparisons with the new securities legislation that President Barack Obama is scheduled to sign into law. The act lets newly public companies go five years without providing internal-control reports by outside auditors, as long as annual revenue is less than $1 billion. (Groupon reported 2011 revenue of $1.6 billion.)
The change comes after the Dodd-Frank Act in 2010 permanently exempted companies with less than $75 million of freely tradable shares from meeting this requirement — which means most U.S. public companies.
The new law will reduce disclosure obligations in many other ways. Pre-IPO correspondence between companies and the SEC’s staff initially would be stamped secret, for example. The act is a lurch in the opposite direction of what is needed.
Let’s not fool ourselves, though. The existing protections for IPO investors were feeble before the new law. That Groupon could stay mum for so long about any control weaknesses it had, legally, is merely the latest evidence.
There is only one solution for investors who aren’t insiders: Don’t ever buy stock in a company that just went public.
Plastics manufacturer Spartech Corp. reported a $2.3 million loss in the first fiscal quarter, driven by increased freight costs, corporate expenses and spending on repairs and maintenance.
Clayton-based Spartech lost $2.3 million, or 7 cents a share, in the quarter ended Feb. 4, compared to a profit of $1.0 million, or 3 cents a share, a year earlier.
The company’s business units include custom sheet and rollstock, packaging technologies and color and specialty compounds.
Net sales increased 20 percent to $281.8 million in the first quarter, driven by sales in the automotive sector, construction, and food packaging.
Spartech executives plan to hold an investors’ conference call Thursday at 10 a.m. to discuss the quarterly results.
Oil prices rose slightly to near $107 a barrel Wednesday in Asia after a large drop the day before amid mixed signs about the strength of U.S. crude demand.
Benchmark oil for April delivery was up 42 cents to $106.97 midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract fell by $2.01 to $106.55 per barrel in New York on Tuesday.
Brent crude was up 60 cents to $122.15 per barrel in London.
U.S. crude and oil product inventories were mixed last week. The American Petroleum Institute said late Tuesday that crude inventories rose 521,000 barrels while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted an increase of 1 million barrels.
Inventories of gasoline fell 916,000 barrels last week while distillates dropped 3.3 million barrels, the API said.
The Energy Department’s Energy Information Administration reports its weekly supply data later Wednesday faxless payday loans.
An improvement in consumer sentiment helped bolster oil prices in Asia. The Conference Board, a private business research group, said Tuesday that consumer confidence rose to a one-year high in February. However, the government said orders for durable goods in the U.S. in January had the biggest fall in three years.
Crude has jumped from $96 earlier this month amid growing tension over Iran’s nuclear program. Investors will be closely watching the latest data on U.S gross domestic product and industrial production due to be released later Wednesday.
In other energy trading, heating oil rose 2.2 cents to $3.24 per gallon and gasoline futures gained 1 cent at $3.23 per gallon. Natural gas added 1.9 cents at $2.54 per 1,000 cubic feet.
Euro-area confidence in the economic outlook improved less than forecast in January as the region
Stocks are rising at the open on hopes for a plan to restore long-term confidence in the euro.
French and German leaders are meeting to discuss closer political and economic cooperation between the 17 nations that use the currency. They want tighter control of budgets, to prevent the kinds of debts that might to cause Greece and others to default.
Stocks overseas rose modestly Monday, while the yields on Italian bonds dove, suggesting traders believe that Italy is less likely to default. Italy’s government agreed this weekend on a package of austerity and economic growth measures.
The Dow is up 135 points, or 1.1 percent at 12,154. The S&P 500 is up 16, or 1.3 percent at 1,261. The Nasdaq composite index is up 32, or 1.2 percent at 2,659.
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Italian Premier Silvio Berlusconi has won a much-watched vote in Parliament but it shows he can no longer count on an overall majority in the Chamber of Deputies.
In parliament, 308 voted in favor, 321 abstained and no one voted against.
The opposition immediately demanded that Berlusconi resign to calm financial markets, although he has always refused those calls.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.
ROME (AP) _ Premier Silvio Berlusconi geared up for one of the most critical votes of his long political career Tuesday, as his main ally urged him to resign and Italy’s political uncertainty rocked financial markets for yet another day.
Berlusconi did not immediately respond to the demand, but he has repeatedly resisted all calls for his resignation before his term ends in 2013.
Berlusconi’s government is under intense pressure to enact quick reforms to shore up Italy’s defenses against Europe’s raging debt crisis. However, a weak coalition and doubts over Berlusconi’s leadership have ignited market fears of a looming Italian financial disaster that could bring down the 17-nation eurozone and shock the global economy.
“We asked him to step aside, take a step to the side,” Northern League leader Umberto Bossi told reporters ahead of a key vote in Parliament that could force Berlusconi’s resignation. Bossi is the volatile ally who also brought down Berlusconi’s first conservative government in 1994.
On the face of it, Tuesday’s vote is just a routine measure to approve 2010 state finances, but it has now become a test of Berlusconi’s political strength.
Italy’s center-left opposition said it would abstain in Tuesday’s voting, to make it clear just how fragile Berlusconi’s forces in Parliament are. If he is backed by fewer than 316 deputies _ or less than half of the 630-member chamber _ it would show the prime minister can no longer count on a majority in the lower house of Parliament, even though the government could still mathematically win the vote.
Bossi said the man Berlusconi has already picked as his successor, former Justice Minister Angelino Alfano, should now lead the government.
But it would be up to the Italian president, Giorgio Napolitano, to decide whether to appoint a new leader or dissolve parliament and call early elections. He would likely sound out political leaders before deciding.
Added Bossi: “Today, nothing will happen.”
Italy is the eurozone’s third-largest economy, with debts of around euro1.9 trillion ($2.6 trillion). Representing 17 percent of the eurozone’s gross domestic product, it is considered too big for Europe to bail out like the continent already has done for Greece, Portugal and Ireland.
Even worse, a substantial part of Italy’s debt needs to be rolled over in the next few years _ the nation needs to raise euro300 billion ($412 billion) in 2012 alone _ just as interest rates for it to borrow have been soaring.
Italy’s borrowing rates spiked Tuesday to their highest level since the euro was established in 1999. By mid-afternoon, the yield on Italy’s ten-year bonds was up 0.08 percentage point at 6.62 percent, down from an earlier high of 6.74 percent. A rate of over 7 percent is considered unsustainable and proved to be the trigger point that forced the other three eurozone nations into accepting financial bailouts.
Even the business leaders who once enthusiastically backed the media mogul’s leadership have been upset for months, saying Berlusconi’s government has failed to revive Italy’s stalled economy.
“(Italy) cannot go forward” with the soaring spread. “The country cannot stay in these conditions,” said Emma Marcegaglia, who leads a politically influential Italian business lobby.
The opposition center-left has long demanded the 75-year-old leader’s resignation, citing sex scandals, criminal prosecutions and legislative priorities it says are aimed at protecting his own business interests rather than those of the country. However, it has failed to come up with a leader who can unite the opposition.
Berlusconi appeared to be frantically trying to line up vote after vote, with at least two party dissenters visiting his Rome residence Tuesday as parliament resumed debate ahead of the vote.
One, lawmaker Isabella Bertolini, told reporters upon leaving she would vote in favor of the government. She said Berlusconi had laid out for her “all the possibilities and options that he’s evaluating: Stay, step back, step aside.”
Finance Minister Giulio Tremonti hurriedly left a eurozone finance ministers meeting in Brussels to get back to Rome for the vote.
But at least one deputy from Berlusconi’s People of Freedom Party won’t be there. Lawmaker Alfonso Papa, who is being investigated in a corruption scandal, is under house arrest.
If he gets through Tuesday’s hurdle, Berlusconi has indicated next week’s vote on the austerity measures would be a confidence vote. If it loses that, he would have to resign.
Antonio Di Pietro, a leader of a small center-left opposition party, told Sky TG24 TV that Berlusconi’s “political adventure has been over for a while now.” However, he doubted that Berlusconi would voluntarily leave.
One of Berlusconi’s closest allies, lawmaker Francesco Cicchitto, told reporters that coalition leaders will take stock immediately after the vote.
“One thing at a time. First the vote, let’s let it happen. Then we’ll reflect,” he said.
International financial officials and the markets, meanwhile, fretted over how long it was going to take for Italian lawmakers to approve measures promised weeks ago by Berlusconi to rein in Italy’s galloping public debt.
“I’m not making any judgment on Mr. Berlusconi personally. But I think there is a problem of confidence,” French Foreign Minister Alain Juppe told French radio RTL.
During a G-20 summit last week, Berlusconi had to take the humiliating step of asking the International Monetary Fund to monitor the country’s reform efforts. On Wednesday, a separate European Union monitoring mission is to begin work in Rome to review financial reforms taken so far.
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