An individual walks by a CVS Pharmacy retailer in Manhattan, New York, on Nov. 15, 2021.
Andrew Kelly | Reuters
CVS Well being on Wednesday reported combined third-quarter outcomes as increased medical prices squeezed its backside line. The earnings report is CEO David Joyner’s first on the helm of the troubled retail drugstore chain.
The corporate expects elevated medical prices to proceed to stress its efficiency this 12 months, “and in consequence we’re not offering a proper outlook at the moment,” a spokesperson advised CNBC. CVS will present commentary on what it expects “directionally” throughout its earnings name, the spokesperson mentioned.
“Establishing credibility and incomes the belief of our buyers is one among my prime priorities as the brand new chief of CVS Well being,” Joyner mentioned in an announcement. “To attain that, any steering we offer must be achievable, with clear alternatives for outperformance. It is a core precept for me.”
Wall Avenue’s confidence in CVS has soured this 12 months after three straight quarters of full-year steering cuts, prompting stress from an activist investor to show the enterprise round.
Shares of the corporate are down practically 27% for the 12 months as increased medical prices in its medical insurance unit, Aetna, eat into its earnings, reflecting seniors who’re returning to hospitals to endure procedures that they had delayed in the course of the Covid-19 pandemic.
“Whereas all the trade has seen elevated utilization popping out of the pandemic, now we have been extra acutely impacted than others,” Joyner mentioned. “Our instant precedence stays guaranteeing stability of the enterprise.”
Additionally on Wednesday, CVS named a brand new president for Aetna, efficient instantly: Steve Nelson, the previous CEO of healthcare large UnitedHealthcare, a division of UnitedHealth Group. Joyner and Nelson are tasked with convincing buyers that CVS can get again on monitor and higher handle the higher-than-expected prices.
In the meantime, longtime firm government Prem Shah will tackle a brand new, expanded position that oversees the corporate’s retail pharmacy, pharmacy advantages and well being care supply companies, CVS mentioned.
Shares of CVS rose practically 6% in premarket buying and selling Wednesday.
This is what CVS reported for the third quarter in contrast with what Wall Avenue was anticipating, primarily based on a survey of analysts by LSEG:
- Earnings per share: $1.09 adjusted vs. $1.51 anticipated
- Income: $95.43 billion vs. $92.75 billion anticipated
On Oct. 18, when CVS introduced Joyner had changed former CEO Karen Lynch, the corporate additionally mentioned it had performed a strategic evaluation that included layoffs, write-downs and the closure of 271 extra retail shops. These actions had been along with a plan introduced in August to chop $2 billion in bills over the following a number of years, which incorporates slicing practically 3,000 jobs, or lower than 1% of its workforce.
CVS reported gross sales of $95.43 billion for the third quarter, up 6.3% from the identical interval a 12 months in the past because of progress in its pharmacy enterprise and insurance coverage unit.
The corporate posted internet revenue of $71 million, or 7 cents per share, for the third quarter. That compares with internet revenue of $2.27 billion, or $1.75 per share, for the year-earlier interval.
Excluding sure objects, corresponding to amortization of intangible property, restructuring prices and capital losses, adjusted earnings per share had been $1.09 for the quarter. That is in step with the estimate the corporate offered final month.
Adjusted and unadjusted earnings additionally included a cost of 63 cents per share, or $1.1 billion, from so-called “premium deficiency reserves” in its insurance coverage enterprise associated to anticipated losses within the fourth quarter of 2024.
That refers to a legal responsibility that an insurer might have to cowl if future premiums usually are not sufficient to pay for anticipated claims and bills. Premium deficiency reserves “are successfully an acceleration of future losses, shifting the earnings cadence between” the third quarter and fourth quarter, a spokesperson advised CNBC.
CVS expects these premium deficiency reserves “to be considerably launched” in the course of the fourth quarter, which is able to profit ends in that interval. The spokesperson mentioned CVS doesn’t count on to guide a premium deficiency reserve for 2025.
CVS additionally recorded restructuring prices of 93 cents per share, or $1.17 billion, within the third quarter. That features $607 million for extra shops it plans to shut in 2025 and $293 million associated to layoffs.
Strain on insurance coverage unit
CVS’s insurance coverage enterprise booked $33 billion in income in the course of the quarter, up greater than 25% from the third quarter of 2023. The division reported an adjusted working lack of $924 million for the third quarter.
The insurance coverage unit’s medical profit ratio — a measure of complete medical bills paid relative to premiums collected — elevated to 95.2% from 85.7% a 12 months earlier. A decrease ratio usually signifies that an organization collected extra in premiums than it paid out in advantages, leading to increased profitability.
CVS’s well being providers section generated $44.13 billion in income for the quarter, down practically 6% in contrast with the identical quarter in 2023.
That unit consists of Caremark, one of many nation’s largest pharmacy advantages managers. Caremark negotiates drug reductions with producers on behalf of insurance policy and creates lists of medicines — or formularies — which are lined by insurance coverage and reimburses pharmacies for prescriptions.
CVS’s well being providers division processed 484.1 million pharmacy claims in the course of the quarter, down from 579.6 million in the course of the year-ago interval.
The corporate’s pharmacy and client wellness division booked $32.42 billion in gross sales for the third quarter, up greater than 12% from the identical interval a 12 months earlier. That unit dispenses prescriptions in CVS’s greater than 9,000 retail pharmacies and offers different pharmacy providers, corresponding to vaccinations and diagnostic testing.
The rise was partly pushed by elevated prescription quantity, CVS mentioned. Pharmacy reimbursement stress, the launch of latest generic medicine and decrease front-store quantity, together with from decreased retailer rely, weighed on the unit’s gross sales.
In an announcement, Joyner mentioned CVS’s share of the retail pharmacy market is at 27.3%, an all-time excessive.
