CVS Caremark will halt tobacco sales this fall, but the pharmacy chain still has connections to more than $17 million invested in tobacco companies.
The tobacco stocks are included in the mutual-fund investments offered to employees in CVS Caremark's 401(k) and employee stock-ownership plans. The tobacco-related stocks are less than 1 percent of the $6 billion in investments on behalf of more than 200,000 employees.
The plans have investments in major U.S. tobacco companies R.J. Reynolds American Inc.; Lorillard Inc.; Imperial Tobacco Group; Altria Group, the parent company of Philip Morris; and Philip Morris International.
CVS Caremark in a prepared statement Tuesday said that by law its 401(k)-plan investments are made by fiduciaries independent of corporate considerations and the decisions are made to "promote the interests of plan participants and their beneficiaries."
"We expect that our decision announced last week to eliminate sales of tobacco in our stores will invigorate the exploration of additional investment alternatives with potential socially beneficial impact," the company said.
CVS Caremark, based in Woonsocket, R.I., drew widespread praise when it announced Feb. 5 that it would stop selling tobacco products Oct. 1 at its 7,600 drugstores. The move is expected to cost CVS $1.5 billion in annual tobacco sales and another $500 million in related sales.
It will be the first major pharmacy chain to stop selling cigarettes nationwide.
"The feedback has been overwhelmingly positive," said Larry Merlo, CVS Caremark chief executive, during an earnings conference call with analysts Tuesday.
Divestiture of tobacco stocks has not been a front-burner issue for well over a decade. Some state pension funds and universities chose to cut their investments in tobacco stocks during the 1990s.
In 1996, the American Medical Association urged investors to sell their shares in tobacco companies and mutual funds with tobacco securities.
Jay Epstein, a retired Phoenix obstetrician, said it's a contradiction for CVS Caremark to stop selling cigarettes while tobacco stocks make money for its employees and retirees.
"I'm not for smoking, don't get me wrong," said Epstein, adding that CVS Caremark should not make tobacco stocks available.
Patrick Reynolds, executive director of the Foundation for a Smokefree America, based in Playa del Rey, Calif., agreed.
"I think it would be a good idea for CVS to divest their tobacco stocks," he said.
He is the grandson of R.J. Reynolds, founder of the tobacco company of the same name. Reynolds' brands include Camel, Winston and Salem.
"I do think the move to stop selling tobacco shows great vision and leadership," Reynolds said of CVS. "I think it will bring them shoppers."
The CVS report on its 401(k) and employee-stock plans list investments as of Dec. 31, 2012. The report was filed with the Securities and Exchange Commission in June.
It shows that CVS Caremark's 401(k) and employee stock-ownership plans had 183,000 shares of Altria Group stock, valued at $7.25 million, and 81,000 shares of Phillip Morris International, worth $8.2 million.
CVS plans have smaller stakes in Imperial Tobacco, with 12,900 shares valued at $999,621; 3,050 shares of Lorillard, worth $355,844; and 8,015 shares of Reynolds American, valued at $332,061.
The combined value was more than $17 million but it has fallen to $14 million based on current stock prices.
Phillip Morris' brands include Marlboro, Virginia Slims, Parliament, Chesterfield, Basic and Merit.
Lorillard is the maker of Newport, Kent, True and Old Gold cigarettes.
Imperial Tobacco Group sells Cohiba and Montecristo cigars along with Gitanes and other specialty cigarettes.
CVS Caremark on Tuesday reported $126.8 billion in annual revenue, up 3 percent from the previous year. Annual earnings per share were up 15.7 percent to $3.96.
"We do not see this (tobacco sales ban) having a negative effect on our pharmacy business," Merlo, the chief executive, told analysts.
Helena Foulkes, CVS/pharmacy president, said the company's stores are not a key destination for tobacco buyers, noting that only 4 percent of cigarette sales are in drugstores.