CVS Health reported mixed third-quarter results on Wednesday as higher medical costs weighed on its bottom line. The earnings report is CEO David Joyner's first on the helm of the troubled drugstore chain.
The company expects increased medical costs to proceed to weigh on its performance this yr, “and therefore we are not providing a formal outlook at this time,” a spokesperson told CNBC.
“Building credibility and earning the trust of our investors is one of my top priorities as the new leader of CVS Health,” Joyner said in a press release. “To achieve this, any guidance we provide should be achievable and provide clear opportunities for outperformance. That is a fundamental principle for me.”
CVS won't provide formal 2025 guidance until next yr, when the corporate has a greater view of its changing membership base and medical cost base for 2024, CFO Tom Cowhey said during a conference call Wednesday.
Wall Street's confidence in CVS has fallen this yr after it cut full-year forecasts for 3 straight quarters, sparking pressure from an activist investor to show across the business.
The company's shares are down nearly 27% for the yr as higher medical costs at its medical insurance unit Aetna hit profits, driven by seniors returning to hospitals to undergo procedures they needed through the Covid-19 pandemic. pandemic had postponed.
“While the entire industry saw increased utilization due to the pandemic, we were hit harder than others,” Joyner said. “Our top priority remains ensuring the stability of the company.”
Also on Wednesday, CVS named a brand new president for Aetna, effective immediately: Steve Nelson, the previous CEO of health care giant UnitedHealthcare, a division of United Health Group. Joyner and Nelson are tasked with convincing investors that CVS can get back on the right track and higher manage higher-than-expected costs.
Meanwhile, the corporate's longtime chief executive, Prem Shah, will tackle a brand new, expanded role, overseeing the corporate's retail pharmacy, pharmacy advantages and health care businesses, CVS said.
Shares of CVS rose greater than 10% on Wednesday.
Here's something CVS reported for the third quarter in comparison with Wall Street expectations based on an analyst survey by LSEG:
- Earnings per share: $1.09 adjusted vs. $1.51 expected
- Revenue: $95.43 billion versus expected $92.75 billion
When CVS announced on October 18 that Joyner had succeeded former CEO Karen Lynch, the corporate also announced that it had conducted a strategic review This included layoffs, write-downs and the closure of 271 additional retail stores. Those moves got here along with a plan announced in August to chop spending by $2 billion over the following few years, which might involve cutting nearly 3,000 jobs, or lower than 1% of the workforce.
CVS reported third-quarter revenue of $95.43 billion, up 6.3% from the identical period last yr, driven by growth in its pharmacy business and insurance division.
The company reported third-quarter net income of $71 million, or 7 cents per share. In comparison, net income within the year-ago period was $2.27 billion, or $1.75 per share.
Excluding certain items similar to amortization of intangible assets, restructuring charges and capital losses, adjusted earnings per share for the quarter were $1.09. That's consistent with the estimate the corporate provided last month.
Adjusted and unadjusted earnings also included a charge of 63 cents per share, or $1.1 billion, from so-called insurance premium deficiency reserves related to expected losses within the fourth quarter of 2024.
This refers to a liability that an insurer might have to cover if future premiums will not be sufficient to cover expected claims and costs. Premium shortfall provisions “are effectively an acceleration of future losses and shift the revenue cadence between the third and fourth quarters,” a spokesperson told CNBC.
CVS expects these premium deficit reserves to be “substantially released” within the fourth quarter, which is able to profit leads to that period. The spokesman said CVS doesn’t expect to record a premium deficiency provision for 2025.
However, if medical costs proceed to rise, Cowhey said the corporate could see one other charge related to expected losses in 2025, which might “further weigh on” results this yr.
CVS also recorded third-quarter restructuring charges of 93 cents per share, or $1.17 billion. That includes $607 million for added store closures in 2025 and $293 million related to layoffs.
Pressure on the insurance unit
CVS's insurance business reported revenue of $33 billion within the quarter, up greater than 25% from the third quarter of 2023. The division reported an adjusted operating lack of $924 million for the third quarter.
The insurance unit's medical profit ratio – a measure of total medical costs paid relative to premiums collected – rose to 95.2% from 85.7% a yr ago. A lower ratio typically indicates that an organization has collected more in premiums than it has paid out in advantages, resulting in higher profitability.
CVS's health services segment generated revenue of $44.13 billion within the quarter, down nearly 6% from the identical quarter in 2023.
This unit includes Caremark, one in all the nation's largest pharmacy profit managers. Caremark negotiates drug discounts with manufacturers on behalf of insurance coverage, creates lists of medicines—or prescription lists—which are covered by insurance, and reimburses pharmacies for the fee of prescriptions.
CVS' health services division processed 484.1 million pharmacy claims within the quarter, down from 579.6 million within the year-ago period.
The company's pharmacy and consumer wellness division reported third-quarter revenue of $32.42 billion, up greater than 12% from the identical period last yr. This unit dispenses prescriptions at CVS's greater than 9,000 retail pharmacies and provides other pharmacy services similar to vaccinations and diagnostic testing.
CVS said the rise was due partially to increased prescription volume. Reimbursement pressure from pharmacies, the introduction of recent generics and lower store volume, also as a consequence of a smaller variety of branches, weighed on the unit's sales.
In a press release, Joyner said CVS's share of the retail pharmacy market is at 27.3%, an all-time high.
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