CVS results top estimates even as high medical costs drag down insurance unit – CNBC
Source: CNBC
CVS Health on Wednesday reported fourth-quarter revenue and profit that topped estimates, even as its troubled insurance business continued to see higher medical costs.
The company also issued a full-year 2025 adjusted earnings outlook of $5.75 to $6 per share, which was in line with Wall Street’s expectations. But CVS did not provide a revenue forecast for the year.
It caps off the first full quarter with David Joyner, a longtime CVS executive, as CEO of the troubled retail drugstore chain. Joyner succeeded Karen Lynch in mid-October, as CVS struggled to drive higher profits and improve its stock performance.
The company underwent a management reshuffle as part of a broader turnaround plan that includes $2 billion in cost cuts over the next several years. CVS has grappled with rising costs in its insurance unit, Aetna, and a retail pharmacy business pressured by softer consumer spending and lower reimbursements for prescription drugs.
Here’s what CVS reported for the fourth quarter compared with what Wall Street was expecting, based on a survey of analysts by LSEG:
The company’s shares closed 15% higher on Wednesday.
CVS and other insurers such as UnitedHealth Group and Humana have seen medical costs spike over the last year as more Medicare Advantage patients return to hospitals for procedures they delayed during the pandemic.
Medicare Advantage, a privately run health insurance plan contracted by Medicare, has long been a driver of growth and profits for insurers. But investors have become concerned about the runaway costs tied to those plans, which cover more than half of all Medicare beneficiaries.
CVS booked sales of $97.71 billion for the fourth quarter, up 4.2% from the same period a year ago due to growth in its pharmacy business and insurance unit.
The company posted net income of $1.64 billion, or $1.30 per share, for the fourth quarter. That compares with net income of $2.05 billion, or $1.58 per share, for the year-earlier period.
Excluding certain items, such as amortization of intangible assets, restructuring charges and capital losses, adjusted earnings were $1.19 per share for the quarter.
CVS said its fourth-quarter earnings reflect higher medical costs in its insurance business and lower Medicare Advantage star ratings for the 2024 payment year, both of which weighed on the segment’s operating results for the quarter. Those star ratings help Medicare patients compare the quality of Medicare health and drug plans.
But CVS expects to improve margins in its Medicare Advantage business in 2025, partly by shrinking its membership in those plans by a “high single-digit percentage” from the end of 2024, Joyner said on an earnings call on Wednesday. He added that the company has improved Medicare Advantage star ratings for the year.
“Our focus remains on delivering on our commitments to our Medicare Advantage members while creating a viable path to appropriate margins,” Joyner said.
Companies can decide to stop covering patients in markets that they determine are unprofitable, and patients who lose insurance can enroll in a new Medicare Advantage plan or join traditional Medicare plans.
All three of CVS’ business segments beat Wall Street’s expectations for the fourth quarter.
CVS’ insurance business booked $32.96 billion in revenue during the quarter, up more than 23% from the fourth quarter of 2023. Analysts expected the unit to take in $32.89 billion for the period, according to estimates from StreetAccount.
But the business reported an adjusted operating loss of $439 million for the fourth quarter, compared with adjusted operating income of $676 million in the year-earlier period. That change was driven by higher medical costs and the company’s Medicare Advantage star ratings, among other factors.
The insurance unit’s medical benefit ratio — a measure of total medical expenses paid relative to premiums collected — increased to 94.8% from 88.5% a year earlier. A lower ratio typically indicates that a company collected more in premiums than it paid out in benefits, resulting in higher profitability.
The fourth-quarter ratio was lower than the 95.9% that analysts were expecting, StreetAccount estimates said.
“Medical trends remain elevated, although what we experienced in the fourth quarter was less severe than what we assumed,” CVS CFO Thomas Cowhey said on the call.
CVS’ health services segment generated $47.02 billion in revenue for the quarter, down more than 4% compared with the same quarter in 2023. Analysts expected the unit to post $44.06 billion in sales for the period, according to StreetAccount.
That unit includes Caremark, one of the nation’s largest pharmacy benefit managers. Caremark negotiates drug discounts with manufacturers on behalf of insurance plans and creates lists of medications, or formularies, that are covered by insurance and reimburses pharmacies for prescriptions.
CVS’ health services division processed 499.4 million pharmacy claims during the quarter, down
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