A CVS location in New York, US, on Thursday, February 9, 2023.
Stephanie Keith | Bloomberg | fake images
CVS Health On Wednesday it reported fourth-quarter revenue and adjusted earnings that beat expectations, but the company cut its full-year profit outlook, citing higher medical costs that are impacting the broader insurance industry.
The company lowered its 2024 adjusted earnings forecast to at least $8.30 per share, down from a previous guidance of at least $8.50 per share. Analysts surveyed by LSEG expected full-year adjusted earnings of $8.49 per share.
CVS also lowered its unadjusted earnings guidance to $7.06 per share, down from at least $7.26 per share.
The company said its new guidance follows a revision of its medical cost trend analysis for the fourth quarter and a recognition of the “potential implications” of elevated medical cost trends in 2024. CVS owns the health insurer Aetna.
insurers like human Medical costs have risen as increasing numbers of older adults return to hospitals for procedures they had delayed during the pandemic, such as joint and hip replacements.
Here's what CVS reported for the fourth quarter compared to what Wall Street expected, according to a survey of analysts by LSEG, formerly known as Refinitiv:
- Earnings per share: $2.12 adjusted vs. $1.99 expected
- Revenue: $93.81 billion vs. $90.41 billion expected
CVS posted sales of $93.81 billion for the quarter, up nearly 12% from the same period a year earlier. That increase was primarily due to the strength of its health services business.
While CVS beat earnings expectations, its profits were down from a year earlier.
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, during 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 will revamp the way it prices prescription drugs and eliminate a complex model that typically establishes how much pharmacies are reimbursed and how much patients pay for those drugs. The company plans to launch a new model, called CostVantage, for how payers will reimburse their pharmacies. That model will first apply to commercial payers starting in 2025.
The results also come as CVS tries to transform itself from a major pharmacy chain into a large health care company. The company deepened that momentum over the past year with the nearly $8 billion acquisition of healthcare provider Signify Health and a $10.6 billion deal to buy Oak Street Health, which operates primary care clinics for old people.
CVS will host an earnings conference call with investors at 8:00 a.m. ET on Wednesday.
Strength in the health services business
The company's health services segment generated $49.15 billion in revenue during the quarter, an increase of 12.3% compared to the same quarter in 2022.
The division 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 topped analysts' estimate 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 who suffer from complex disorders and require specialized therapies. The company added that brand inflation and its recent acquisitions also boosted the segment's results.
The healthcare division processed 600.8 million pharmacy claims during the quarter, stable from the same period a year ago.
Other divisions show growth
CVS' health insurance segment generated $26.73 billion during the quarter, an increase of approximately 16% from the fourth quarter of 2022. The division includes Aetna plans for the Affordable Care Act, Medicare Advantage and Medicaid, as well as dental and vision services.
Sales missed analysts' estimate of $27.09 billion for the quarter, according to StreetAccount.
The insurance segment's medical benefit ratio (a measure of total medical expenses paid relative to premiums collected) increased to 88.5% from 85.8% a year earlier. A lower ratio generally indicates that the company collected more in premiums than it paid in profits, resulting in higher profitability.
Analysts expected that ratio to be 88.1%, according to StreetAccount estimates.
CVS said the increase was primarily due to increased utilization of Medicare Advantage, including outpatient and supplemental care benefits. Commercial and Medicaid usage also returned to normal levels, the company added.
A CVS inside a Target store in Miami Beach, Florida.
Jeff Greenberg | Universal Image Group | fake images
The company's pharmacy and consumer wellness division posted $31.19 billion in sales for the quarter, up 8.6% from the same period a year ago. That segment dispenses prescriptions at CVS's more than 9,000 brick-and-mortar retail pharmacies and provides other pharmacy services, such as diagnostic testing and vaccinations.
Analysts expected the division to generate $30.15 billion in sales, according to StreetAccount.
CVS said the increase was driven by higher prescription volume, brand inflation and higher contributions from vaccines, among other factors.
The division filled 431.5 million prescriptions during the quarter, slightly up from 423.4 million in the same period a year ago.
CVS same-store sales grew 11.3% during the three-month period compared to the same period a year earlier, but not equally across all stores. Same-store sales increased 15.5% in the pharmacy division, but decreased 3.1% in the front of the store.
