CVS beats estimates, but cuts full-year profit outlook on higher medical costs

CVS beats estimates, but cuts full-year profit outlook on higher medical costs

A CVS location in New York, US, on Thursday, Feb. 9, 2023.

Stephanie Keith | Bloomberg | Getty Images

CVS Health on Wednesday reported fourth-quarter income and adjusted earnings that topped expectations, but the corporate lower its full-year profit outlook, citing higher medical costs which can be dogging the broader insurance industry.

The firm lowered its 2024 adjusted earnings forecast to no less than $8.30 per share, down from a earlier steerage of no less than $8.50 per share. Analysts surveyed by LSEG have been anticipating full-year adjusted earnings of $8.49 per share. 

CVS additionally lower its unadjusted earnings steerage to $7.06 per share, down from no less than $7.26 per share. 

The firm mentioned its new steerage follows a assessment of its medical price development evaluation for the fourth quarter and a recognition of the “potential implications” for elevated medical price developments in 2024. CVS owns well being insurer Aetna

Insurers reminiscent of Humana have been seeing medical costs spike as an growing variety of older adults return to hospitals to endure procedures they’d delayed through the pandemic, reminiscent of joint and hip replacements. 

Here’s what CVS reported for the fourth quarter in contrast with what Wall Street was anticipating, primarily based on a survey of analysts by LSEG, previously often called Refinitiv:

  • Earnings per share: $2.12 adjusted vs. $1.99 anticipated
  • Revenue: $93.81 billion vs. $90.41 billion anticipated

CVS booked gross sales of $93.81 billion for the quarter, up nearly 12% from the identical interval a yr in the past. That enhance was primarily pushed by energy in its well being providers enterprise.

While CVS beat earnings expectations, its profit shrank from the prior year

The firm reported web earnings of $2.05 billion, or $1.58 per share, for the fourth quarter. That compares with a web earnings of $2.33 billion, or $1.77 per share, for a similar interval a yr in the past. 

Excluding sure objects, reminiscent of amortization of intangible property and capital losses, adjusted earnings per share have been $2.12 for the quarter.

The fourth-quarter outcomes come two months after CVS mentioned it’s going to revamp the way it costs prescribed drugs and scrap a fancy mannequin that sometimes units how a lot pharmacies get reimbursed and what sufferers pay for these medicines. The firm plans to launch a new model, known as CostVantage, for a way payors will reimburse its pharmacies. That mannequin will first apply to industrial payors beginning in 2025.

The outcomes additionally come as CVS pushes to rework from a serious drugstore chain into a big health-care firm. The firm deepened that push during the last yr with its practically $8 billion acquisition of health-care supplier Signify Health and a $10.6 billion deal to purchase Oak Street Health, which operates primary-care clinics for seniors.

CVS will maintain an earnings call with buyers at 8:00 a.m. ET on Wednesday.

Strength in well being providers enterprise

The firm’s well being providers section generated $49.15 billion in income for the quarter, a 12.3% enhance in contrast with the identical quarter in 2022. 

The division contains CVS Caremark, which negotiates drug reductions with producers on behalf of insurance coverage, in addition to health-care providers delivered in medical clinics, by telehealth and at house.

Those gross sales blew previous analysts’ estimate of $46.35 billion in income for the interval, in accordance with StreetAccount. 

CVS mentioned the rise was pushed partly by progress in specialty pharmacy providers, which assist sufferers who’re affected by complicated issues and require specialised therapies. The firm added that model inflation and its current acquisitions additionally boosted the section outcomes. 

The well being providers division processed 600.8 million pharmacy claims through the quarter, which is flat from the year-ago interval. 

Other divisions present progress

CVS’s medical health insurance section generated $26.73 billion through the quarter, a roughly 16% enhance from the fourth quarter of 2022. The division contains plans by Aetna for the Affordable Care Act, Medicare Advantage and Medicaid, in addition to dental and imaginative and prescient.

Sales fell wanting analysts’ estimate of $27.09 billion for the quarter, in accordance with StreetAccount. 

The insurance coverage section’s medical profit ratio — a measure of whole medical bills paid relative to premiums collected — elevated to 88.5% from 85.8% a yr earlier. A decrease ratio sometimes signifies that the corporate collected extra in premiums than it paid out in advantages, leading to higher profitability.

Analysts had anticipated that ratio to be 88.1%, in accordance with StreetAccount estimates. 

CVS mentioned the rise was primarily pushed by elevated utilization in Medicare Advantage, together with outpatient and supplemental care advantages. Commercial and Medicaid use additionally returned to normalized ranges, the corporate added. 

A CVS inside a Target retailer in Miami Beach, Florida.

Jeff Greenberg | Universal Images Group | Getty Images

The firm’s pharmacy and shopper wellness division booked $31.19 billion in gross sales for the quarter, up 8.6% from the year-ago interval. That section dispenses prescriptions in CVS’s greater than 9,000 brick-and-mortar retail pharmacies and offers different pharmacy providers, reminiscent of diagnostic testing and vaccination. 

Analysts had anticipated the division to usher in $30.15 billion in gross sales, in accordance with StreetAccount.

CVS mentioned the rise was pushed by heightened prescription quantity, model inflation and elevated contributions from vaccinations, amongst others components.

The division stuffed 431.5 million prescriptions through the quarter, up barely from 423.4 million for the year-earlier interval. 

Same-store gross sales for CVS grew 11.3% through the three-month interval in contrast with the identical time a yr earlier, but not equally throughout the shop. Same-store gross sales jumped 15.5% within the pharmacy division, but have been down by 3.1% within the entrance of the shop.

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