CVS Health On Wednesday it reported fourth-quarter revenue and adjusted earnings that beat expectations, but the company cut its full-year earnings outlook, citing higher medical costs weighing on the broader insurance industry.
The company cut its 2024 adjusted earnings forecast to at least $8.30 per share, from previous guidance of at least $8.50 per share. Analysts polled by LSEG had expected full-year adjusted earnings of $8.49 per share.
CVS also cut its guidance for unadjusted earnings to at least $7.06 per share, from at least $7.26 per share.
The company said its new guidance follows a review of its medical cost trend analysis for the fourth quarter and recognition of “potential implications” for increased medical cost trends in 2024. CVS owns a health insurer Etna.
“Our guidance prudently assumes that the increased medical cost trends we saw in the fourth quarter will carry over into 2024,” CVS Chief Financial Officer Tom Cowhey said on an earnings call Wednesday.
Insurers like Humana are seeing medical costs rise as a growing number of seniors return to hospitals for procedures that were delayed during the pandemic, such as joint and hip replacements.
See what CVS said about it quarter quarter compared to what Wall Street expected, based on a survey of analysts from LSEG, formerly Refinitiv:
- Earnings per share: $2.12 adjusted vs. $1.99 expected
- Income: $93.81 billion vs. $90.41 billion expected
Shares of CVS closed 3% higher on Wednesday.
CVS posted sales of $93.81 billion for the quarter, up nearly 12% from the same period last year. This growth was mainly driven by its strength in the health services sector.
While CVS beat earnings expectations, its earnings shrank from the previous year.
The company reported net income of $2.05 billion, or $1.58 per share, for the fourth quarter. That compares with net income of $2.33 billion, or $1.77 per share, for the same period a year ago.
Excluding certain items such as amortization of intangible assets and capital losses, adjusted earnings per share were $2.12 for the quarter.
The fourth-quarter results come two months after CVS said it would renovate how it prices prescription drugs and does away with a complex model that typically dictates how much pharmacies are reimbursed and what patients pay for those drugs. The company plans to launch a new model, called CostVantage, for how payers will reimburse its pharmacies. This model will first be applied to commercial payers from 2025.
The results also come as CVS pushes to transform itself from a large drugstore chain into a major health care company. CVS deepened that push last year with its nearly $8 billion acquisition of health care provider Signify Health and a $10.6 billion deal to buy Oak Street Health, which operates primary care clinics for seniors.
The company’s health services segment generated revenue of $49.15 billion for the quarter, up 12.3% compared to the same quarter in 2022.
The segment includes CVS Caremark, which negotiates drug discounts with manufacturers on behalf of insurance plans, as well as health care services provided in medical clinics, via telehealth and at home.
Those sales beat analysts’ estimates of $46.35 billion in revenue for the period, according to StreetAccount.
CVS said the increase was due in part to the growth of specialty pharmacy services, which help patients with complex disorders who need specialized treatments. The company added that brand inflation and its recent acquisitions also boosted the segment’s results.
The health services division processed 600.8 million pharmacy claims during the quarter, which is flat from last year’s period.
Signify completed 649,000 in-home assessments during the quarter, CVS executives said during the call. Oak Street ended the quarter with 204 centers, and through January, the number of Aetna members enrolled in Oak Street clinics has doubled, they added.
CVS’s health insurance segment generated $26.73 billion during the quarter, up about 16% from the fourth quarter of 2022. The segment includes Aetna’s Affordable Care Act, Medicare Advantage and Medicaid plans, as well as dental and vision.
Sales missed analysts’ estimates of $27.09 billion for the quarter, according to StreetAccount.
The insurance industry’s medical benefits ratio — a measure of total medical expenses paid relative to premiums collected — rose to 88.5 percent from 85.8 percent a year earlier. A lower ratio usually indicates that the company collected more in premiums than it paid out in benefits, resulting in higher profitability.
Analysts had expected the ratio to be 88.1%, according to StreetAccount estimates.
CVS said the increase was primarily due to increased use of Medicare Advantage, including outpatient and ancillary care benefits such as dental and vision. Commercial use and Medicaid use also returned to normal levels, the company added.
A resume inside a Target store in Miami Beach, Florida.
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The company’s pharmacy and consumer wellness division booked $31.19 billion in sales for the quarter, up 8.6% from the year-ago period. This division dispenses prescriptions to more than 9,000 CVS retail pharmacies and provides other pharmacy services such as diagnostic tests and immunizations.
Analysts had expected the division to generate sales of $30.15 billion, according to StreetAccount.
CVS said the rise was due to increased prescription volume, brand inflation and increased contributions from immunizations, among other factors.
The segment filled 431.5 million prescriptions during the quarter, up slightly from 423.4 million in the prior period.
Same-store sales for CVS rose 11.3% during the quarter compared to the same period last year, but not as much across the store. Same-store sales rose 15.5% in the pharmacy department, but fell 3.1% at the front of the store.
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