CVS Health (CVS) Q1 2024 Earnings

CVS Health On Wednesday, the corporate reported first-quarter revenue and adjusted earnings that fell in need of expectations and cut its full-year profit outlook, citing higher medical costs weighing on the U.S. insurance industry.

The company’s shares fell 10% in premarket trading.

The drugstore chain expects adjusted earnings of at the very least $7 per share in 2024, down from its previous forecast of at the very least $8.30 per share. Analysts surveyed by LSEG expected full-year adjusted earnings of $8.28 per share.

CVS also lowered its unadjusted earnings forecast to at the very least $5.64 per share from at the very least $7.06 per share.

The company said its recent outlook assumes higher medical costs in its insurance business in the primary quarter will proceed all year long. CVS owns health insurer Aetna.

Still, CVS CEO Karen Lynch said in an announcement that “the current environment does not diminish our opportunities, our enthusiasm or the long-term profitability of our business.” CVS is confident “we have a path to address our near-term Medicare Advantage challenges,” she added.

Insurers akin to Humana And UnitedHealth Group have seen medical costs rise as more Medicare Advantage patients return to hospitals for procedures they’d delayed through the pandemic, akin to joint and hip replacements.

Medicare Advantage, a privately owned medical health insurance plan under Medicare plans, has long been a crucial source of growth and profit for the insurance industry. But investors are increasingly concerned in regards to the uncontrollable costs related to these plans greater than the half of all Medicare recipients.

Here’s what CVS reported for the primary quarter in comparison with Wall Street’s expectations, based on an analyst survey from LSEG:

• Earnings per share: $1.31 adjusted vs. $1.69 expected
• Revenue: $88.44 billion versus expected $89.21 billion

CVS reported first-quarter net income of $1.12 billion, or 88 cents per share. In comparison, net income for a similar period last 12 months was $2.14 billion, or $1.65 per share.

Excluding certain items akin to amortization of intangible assets and capital losses, adjusted earnings per share for the quarter were $1.31.

CVS reported revenue of $88.44 billion within the quarter, up nearly 4% from the identical period last 12 months. This increase was resulting from the pharmacy business and the insurance division.

Meanwhile, CVS said sales in its health services segment, which incorporates pharmacy profit manager Caremark, fell within the period. This was primarily resulting from the loss of a giant, unnamed customer, the corporate said.

In January, Tyson Foods said it had ditched CVS’s Caremark and as a substitute chosen PBM startup Rightway to administer drug advantages for its 140,000 employees starting this 12 months. This got here months after Blue Shield of California, one in all the biggest firms within the country’s most populous state, also abandoned Caremark and partnered with Caremark as a substitute Amazon Pharmacy and Mark Cuban’s company Cost Plus Drugs.

These decisions are contributing to a shakeup within the healthcare industry as startups promising lower costs and transparency challenge the biggest PBMs and pressure them to alter their very own business models.

The first quarter results come as CVS continues to rework itself from a big drugstore chain into a significant healthcare company. CVS expanded on that push last 12 months with its nearly $8 billion acquisition of health care provider Signify Health and a $10.6 billion deal to purchase Oak Street Health, which operates primary care clinics for seniors. reinforced.

CVS’s medical health insurance segment generated revenue of $32.24 billion within the quarter, a rise of greater than 24% from the primary quarter of 2023. The business includes Aetna’s Affordable Care Act, Medicare Advantage and Medicaid plans, in addition to dental. and vision insurance.

Sales within the period exceeded analysts’ estimate of $30.69 billion, in response to StreetAccount.

But the insurance division reported adjusted operating income of just $732 million for the primary quarter. According to FactSet, that is well below analyst expectations of $1.19 billion.

The segment’s medical profit ratio – a measure of total medical costs paid relative to premiums collected – rose to 90.4% from 84.6% a 12 months ago. A lower ratio typically indicates that the corporate collected more in premiums than it paid out in advantages, resulting in higher profitability.

Analysts had expected a ratio of 88.4%, in response to FactSet estimates.

CVS said the rise was primarily resulting from increased use of Medicare Advantage and the “unfavorable impact” of the corporate’s Medicare Advantage star rankings. This reviews Help Medicare patients compare the standard of Medicare health and drug plans.

CVS added that an additional day in 2024 resulting from the bissextile year also contributed to the upper medical profit rate.

The company’s healthcare services segment generated revenue of $40.29 billion within the quarter, a decline of nearly 10% in comparison with the identical quarter in 2023.

The division includes CVS Caremark, which negotiates drug discounts with manufacturers on behalf of insurance policy, in addition to health care services provided in medical clinics, via telemedicine and at home.

Those sales were according to analysts’ estimate of $40.29 billion in sales for the period, in response to FactSet.

CVS said the decline was due partly to the lack of the unnamed customer and “continued pricing improvements for pharmacy customers.” The decline was partially offset by growth at Oak Street Health, Signify Health and specialty pharmacy services, which serve patients affected by complex medical conditions and requiring specialized therapy.

The health services division processed 462.9 million pharmacy claims within the quarter, down from 587.3 million within the year-ago period.

CVS’ pharmacy and consumer wellness division posted first-quarter sales of $28.73 billion, up nearly 3% from the identical period last 12 months. This segment dispenses prescriptions at CVS’s greater than 9,000 brick-and-mortar retail pharmacies and provides other pharmacy services akin to diagnostic testing and vaccinations.

According to FactSet, analysts had expected the division’s sales to be $29.5 billion.

The company said the rise was primarily resulting from increased prescription volume, including higher contributions from vaccinations. Reimbursement pressure in pharmacies, the introduction of recent generics and lower store volumes, amongst other things, impacted the division’s sales.