WOONSOCKET, R.I. (Reuters)—CVS Caremark Inc. reported a drop in quarterly sales and forecast a 2011 profit below Wall Street expectations, hurt by the introduction of more generic drugs and terminated contracts for its pharmacy benefits management unit.

Shares of CVS fell 1.6% in premarket trading.

CVS said revenues at its PBM, which administers prescription drug benefits for employers and health plans and accounts for nearly half of its business, fell 9.7% to $12.2 billion in the fourth quarter ended Dec. 31.

The large U.S. drugstore chain CVS acquired the Caremark pharmacy benefits manager in 2007, and said last year it would spend $200 million to streamline the unit in 2011, in an effort to save $1 billion in the next five years.

CVS Caremark said it expects 2011 adjusted diluted earnings per share from continuing operations of between $2.72 and $2.82.

That would represent an increase over 2010 but still miss the $2.89 profit per share Wall Street analysts have forecast, according to Thomson Reuters I/B/E/S.

In a statement, Chief Operating Officer Larry Merlo, who takes the reins as chief executive next month, said the company's recent acquisition of Universal American's Medicare Part D business and a good contract selling season would help its PBM this year.

Medicare is the U.S. government's health care program for the elderly.

CVS, which also runs a namesake drugstore chain, reported adjusted reported quarterly earnings from continuing operations of 80 cents per share, slightly above the 79 cents forecast by Wall Street analysts, according to Thomson Reuters I/B/E/S.

Net income was $1.03 billion during the quarter, down slightly from $1.05 billion a year earlier.

Net revenues fell 4.1% to $24.8 billion. Same-store sales at its pharmacies rose 1.7%. But CVS said the introduction of generic drugs, which cost less but are more profitable, had dented pharmacy same-store sales gains by 2.5 percentage points.

CVS, which operated 7,182 drugstores as of the end of the year, opened 32 new locations in the quarter.