On November 15, 2021, a person walked through the CVS Pharmacy in Manhattan, New York.
Andrew Kelly | Reuters
CVS Health Third-quarter results reported Wednesday were mixed, as rising medical costs squeezed the company’s profits. It’s Chief Executive David Joyner’s first earnings report at the helm of the struggling retail pharmacy chain.
The company expects rising healthcare costs to continue to pressure results this year, “so we are not providing a formal outlook at this time,” a spokesperson told CNBC. A spokesman said CVS would comment on its expectations on an earnings call on a “directional basis.”
“As the new leader of CVS Health, establishing credibility and earning the trust of investors is one of my top priorities,” Joiner said in a statement. “To achieve this goal, any guidance we provide should be That’s a core principle for me.”
Wall Street’s confidence in CVS has declined this year after three straight quarters of full-year guidance cuts, prompting pressure from activist investors to turn around the business.
The company’s shares are down nearly 27% this year as rising medical costs at its health insurance unit Aetna eat into its profits, reflecting the return of seniors to the hospital for surgeries that were postponed during the Covid-19 pandemic.
“While utilization across the industry has increased as a result of the pandemic, we have been impacted more severely than other industries,” Joiner said. “Our top priority remains ensuring business stability.”
Also on Wednesday, CVS named a new president of Aetna, effective immediately: Steve Nelson, the former CEO of health care giant UnitedHealthcare, a division of Aetna. UnitedHealth Group. Joiner and Nielsen are tasked with convincing investors that CVS can get back on track and better manage higher-than-expected costs.
Meanwhile, CVS said longtime company executive Prem Shah will take on a new, expanded role overseeing the company’s retail pharmacy, pharmacy benefits and health care services businesses.
CVS shares rose nearly 6% in premarket trading Wednesday.
What’s this CVS third quarter report Compared to Wall Street expectations, according to a survey of analysts by LSEG:
- Earnings per share: Adjusted $1.09, expected $1.51
- income: US$95.43 billion, expected US$92.75 billion
On October 18, when CVS announced that Joyner would replace former CEO Karen Lynch, the company also said it had Conducted a strategy review These include layoffs, writedowns and the closure of an additional 271 retail stores. The actions are in addition to a plan announced in August to cut $2 billion in spending over the next few years, including the elimination of nearly 3,000 jobs, or less than 1% of the workforce.
CVS reported third-quarter sales of $95.43 billion, an annual increase of 6.3%, benefiting from growth in its drug business and insurance divisions.
The company’s third-quarter net income was $71 million, or 7 cents per share. This compares with net income of $2.27 billion, or $1.75 per share, in the same period last year.
Excluding certain items such as amortization of intangible assets, restructuring charges and capital losses, adjusted earnings per share for the quarter were $1.09. That’s consistent with estimates the company provided last month.
Adjusted and unadjusted earnings also included a charge of 63 cents per share, or $1.1 billion, from so-called “premium shortfall reserves” in its insurance business related to expected losses in the fourth quarter of 2024.
This refers to the liability that an insurance company may be liable for if future premiums are insufficient to cover anticipated claims and expenses. A spokesperson told CNBC that the under-reserve for premiums “actually accelerated future losses and changed” the pace of profits between the third and fourth quarters.
CVS expects a “significant release” of these premium shortfall reserves in the fourth quarter, which will benefit results in that period. CVS does not expect to reserve for booking premium shortfalls in 2025, a spokesman said.
CVS also recorded a restructuring charge of 93 cents per share, or $1.17 billion, in the third quarter. That includes $607 million for plans to close more stores in 2025 and $293 million related to layoffs.
Insurance unit pressure
CVS’s insurance business generated revenue of $33 billion in the quarter, an increase of more than 25% from the third quarter of 2023.
Insurance units’ health insurance loss ratio, which measures total medical expenses paid compared to premiums collected, rose to 95.2% from 85.7% a year ago. A lower ratio usually means the company is charging more in premiums than it’s paying out in benefits, resulting in higher profitability.
CVS’s health services segment generated $44.13 billion in revenue in the quarter, down nearly 6% from the same quarter in 2023.
This segment includes Caremark, one of the largest pharmacy benefit managers in the United States. Caremark negotiates drug discounts with manufacturers on behalf of insurance plans and establishes a list (or formulary) of drugs covered by insurance and reimburses pharmacies for prescription fees.
CVS’s health services unit processed 484.1 million drug claims in the quarter, down from 579.6 million a year earlier.
The company’s pharmaceuticals and consumer health division had third-quarter sales of $32.42 billion, an increase of more than 12% from the same period last year. The division fills prescriptions at CVS’s more than 9,000 retail pharmacies and provides other pharmacy services such as vaccinations and diagnostic tests.
CVS said part of the growth was due to increased prescription volume. Pharmacy reimbursement pressures, the introduction of new generic drugs and lower front-store sales, including a reduction in the number of stores, weighed on sales in the segment.
Joyner said in a statement that CVS’s market share in the retail pharmacy market is 27.3%, a record high.
About The Author
