Caremark Blames Growth for Dimmer Profit Picture

After racking up a steady string of ever-increasing quarterly profits, Caremark said Tuesday that it expects to report flat earnings for the first quarter of 1987, despite a hefty 49% increase in revenues.

The Newport Beach-based home health care company, which recently changed its fiscal year to conform to the calendar, said it expects to report net earnings of $2.7 million for the quarter ended March 31, equal to the amount it reported a year earlier.

Revenues for the quarter are expected to increase to $52 million from $35 million a year earlier, Caremark said in its prepared statement, released after the close of the markets Tuesday.

James Sweeney, Caremark’s chairman and chief executive, said Caremark had grown faster than its ability to control expansion-related costs but did not become aware of the problem until recently.

“We ran a little ahead of ourselves in terms of our expenses,” Sweeney said in an interview. “We were investing at a rate greater than we budgeted, and we found out about it too late in the quarter to do anything about it.”

During the last six months, Caremark has doubled its home health-care facilities. Now the company will modestly scale back its growth to bring costs under control. “We will probably open 10% fewer branches than we would otherwise,” Sweeney said.

Stock Has Been Weak

Although he called the quarter just ended a “disappointment,” Sweeney said Caremark expects earnings growth to be back on track during the current quarter and for the rest of 1987, particularly because revenues continue to grow.

Because the announcement was released after the close of the markets, Caremark stock was not affected Tuesday. But the stock has been weak in recent weeks. Its close Tuesday at $19.75 a share, off 75 cents for the day in over-the-counter trading, was down substantially from its 52-week high, reached in March, of $25.375 a share.

The recent stock weakness may have been caused by investor anticipation of the flat first quarter earnings, said David Goldsmith, a health care analyst for the San Francisco brokerage of Robertson, Colman & Stephens.