CVS Well being on Wednesday reported fourth-quarter income and revenue that topped estimates, whilst its troubled insurance coverage enterprise continued to see increased medical prices.
The corporate additionally issued a full-year 2025 adjusted earnings outlook of $5.75 to $6 per share, which was in step with Wall Road’s expectations. However CVS didn’t present a income forecast for the 12 months.
It caps off the primary full quarter with David Joyner, a longtime CVS government, as CEO of the troubled retail drugstore chain. Joyner succeeded Karen Lynch in mid-October, as CVS struggled to drive increased income and enhance its inventory efficiency.
The corporate underwent a administration reshuffle as a part of a broader turnaround plan that features $2 billion in price cuts over the following a number of years. CVS has grappled with rising prices in its insurance coverage unit, Aetna, and a retail pharmacy enterprise pressured by softer shopper spending and decrease reimbursements for prescribed drugs.
Here is what CVS reported for the fourth quarter in contrast with what Wall Road was anticipating, primarily based on a survey of analysts by LSEG:
- Earnings per share: $1.19 per share adjusted vs. 93 cents per share anticipated
- Income: $97.71 billion vs. $97.19 billion anticipated
The corporate’s shares rose 16% on Wednesday.
CVS and different insurers akin to UnitedHealth Group and Humana have seen medical prices spike over the past 12 months as extra Medicare Benefit sufferers return to hospitals for procedures they delayed in the course of the pandemic.
Medicare Benefit, a privately run medical health insurance plan contracted by Medicare, has lengthy been a driver of progress and income for insurers. However traders have turn out to be involved in regards to the runaway prices tied to these plans, which cowl greater than half of all Medicare beneficiaries.
CVS booked gross sales of $97.71 billion for the fourth quarter, up 4.2% from the identical interval a 12 months in the past on account of progress in its pharmacy enterprise and insurance coverage unit.
The corporate posted web revenue of $1.64 billion, or $1.30 per share, for the fourth quarter. That compares with web revenue of $2.05 billion, or $1.58 per share, for the year-earlier interval.
Excluding sure objects, akin to amortization of intangible property, restructuring fees and capital losses, adjusted earnings have been $1.19 per share for the quarter.
CVS mentioned its fourth-quarter earnings mirror increased medical prices in its insurance coverage enterprise and decrease Medicare Benefit star rankings for the 2024 cost 12 months, each of which weighed on the section’s working outcomes for the quarter. These star rankings assist Medicare sufferers evaluate the standard of Medicare well being and drug plans.
However CVS expects to enhance margins in its Medicare Benefit enterprise in 2025, partly by shrinking its membership in these plans by a “excessive single-digit proportion” from the top of 2024, Joyner mentioned on an earnings name on Wednesday. He added that the corporate has improved Medicare Benefit star rankings for the 12 months.
“Our focus stays on delivering on our commitments to our Medicare Benefit members whereas making a viable path to applicable margins,” Joyner mentioned.
Firms can resolve to cease masking sufferers in markets that they decide are unprofitable, and sufferers who lose insurance coverage can enroll in a brand new Medicare Benefit plan or be a part of conventional Medicare plans.
Stress on insurance coverage unit
All three of CVS’ enterprise segments beat Wall Road’s expectations for the fourth quarter.
CVS’ insurance coverage enterprise booked $32.96 billion in income in the course of the quarter, up greater than 23% from the fourth quarter of 2023. Analysts anticipated the unit to soak up $32.89 billion for the interval, in response to estimates from StreetAccount.
However the enterprise reported an adjusted working lack of $439 million for the fourth quarter, in contrast with adjusted working revenue of $676 million within the year-earlier interval. That change was pushed by increased medical prices and the corporate’s Medicare Benefit star rankings, amongst different components.
The insurance coverage unit’s medical profit ratio — a measure of whole medical bills paid relative to premiums collected — elevated to 94.8% from 88.5% a 12 months earlier. A decrease ratio sometimes signifies that an organization collected extra in premiums than it paid out in advantages, leading to increased profitability.
The fourth-quarter ratio was decrease than the 95.9% that analysts have been anticipating, StreetAccount estimates mentioned.
“Medical traits stay elevated, though what we skilled within the fourth quarter was much less extreme than what we assumed,” CVS CFO Thomas Cowhey mentioned on the decision.
CVS’ well being providers section generated $47.02 billion in income for the quarter, down greater than 4% in contrast with the identical quarter in 2023. Analysts anticipated the unit to submit $44.06 billion in gross sales for the interval, in response to StreetAccount.
That unit consists of Caremark, one of many nation’s largest pharmacy profit managers. Caremark negotiates drug reductions with producers on behalf of insurance policy and creates lists of medicines, or formularies, which can be lined by insurance coverage and reimburses pharmacies for prescriptions.
CVS’ well being providers division processed 499.4 million pharmacy claims in the course of the quarter, down from 600.8 million in the course of the year-ago interval as a result of lack of an unnamed massive consumer. Tyson Meals informed CNBC in January 2024 that it dropped CVS because the pharmacy profit supervisor for its roughly 140,000 staff, however it’s unclear if some other firms stopped working with CVS in the course of the 12 months, as effectively.
CVS’ pharmacy and shopper wellness division booked $33.51 billion in gross sales for the fourth quarter, up greater than 7% from the identical interval a 12 months earlier. Analysts anticipated gross sales of $33.03 billion for the quarter, StreetAccount mentioned.
That unit dispenses prescriptions in CVS’ greater than 9,000 retail pharmacies and offers different pharmacy providers, akin to vaccinations and diagnostic testing.
The rise was partly pushed by increased prescription quantity, CVS mentioned. Pharmacy reimbursement strain, the launch of latest generic medication and decrease quantity from front-of-store objects like pantry meals and toiletries, together with from decreased retailer rely, weighed on the unit’s gross sales.
