CVS Health (CVS) earnings Q2 2024

CVS Health on Wednesday slashed its full-year profit outlook again and announced a recent plan to chop $2 billion in expenses over several years as higher medical costs squeeze the corporate and the broader U.S. insurance industry.

The price-cutting plan will streamline the corporate’s operations, increase the usage of artificial intelligence and automation and “rationalize” its business portfolio, amongst other efforts, executives said during an earnings call Wednesday.

The retail drugstore chain also said Aetna President Brian Kane, the highest executive on the CVS-owned insurance unit, will leave the corporate immediately based on the present performance and outlook for the segment.

CVS CEO Karen Lynch will take over management of the business and CFO Thomas Cowhey may also help to oversee it. Katerina Guerraz, CVS Health’s chief strategy officer and head of enterprise affairs, may also develop into the insurance unit’s chief operating officer.

“We’re upset by the present performance and outlook for the health-care profit segment, and I even have decided to make leadership changes effective immediately,” Lynch said on the decision. She later added that the corporate is “committed to returning health-care advantages to its rightful place, and can drive execution and address the challenges facing this business.”

The corporate expects 2024 adjusted earnings of $6.40 to $6.65 per share, down from previous guidance of not less than $7 per share. Analysts surveyed by LSEG were expecting full-year adjusted profit of $6.97 per share. 

CVS also cut its unadjusted earnings guidance to a variety of $4.95 to $5.20 per share, down from not less than $5.64 per share. 

It marks the third consecutive quarter that the corporate has lowered its 2024 profit guidance. 

CVS said its recent outlook reflects continued pressure on its medical health insurance segment, which is seeing increased medical costs and the “unfavorable impact” of the corporate’s Medicare Advantage star rankings. Those rankings help Medicare patients compare the standard of Medicare health and drug plans. 

CVS owns health insurer Aetna. The corporate’s insurance division includes plans by Aetna for the Reasonably priced Care Act, Medicare Advantage and Medicaid, in addition to dental and vision.

Medical costs within the second half of the 12 months might be higher than those in the primary, which the brand new guidance reflects, Cowhey said throughout the call.

Cowhey added that if medical costs remain high, the corporate could also be required to take an in-year premium deficiency reserve in its Medicare business for 2024. That may be a liability that an insurer may have to cover if future premiums should not enough to pay for anticipated claims and expenses. 

A possible premium deficiency reserve could “change the cadence of earnings between third and fourth quarters,” he said.

Insurers equivalent to UnitedHealth Group, Humana and Elevance Health have seen medical costs spike as more Medicare Advantage patients return to hospitals for procedures they delayed throughout the pandemic, equivalent to joint and hip replacements. 

Medicare Advantage, a privately run medical health insurance plan contracted by the federal Medicare program, has long been a driver of growth and profits for the insurance industry. But Wall Street has develop into more concerned in regards to the runaway costs related to those plans, which cover greater than half of all Medicare beneficiaries. 

Here’s what CVS reported for the second quarter compared with what Wall Street was expecting, based on a survey of analysts by LSEG: 

• Earnings per share: $1.83 adjusted vs. $1.73 expected
• Revenue: $91.23 billion vs. $91.5 billion expected 

The corporate posted net income of $1.77 billion, or $1.41 per share, for the second quarter. That compares with net income of $1.90 billion, or $1.48 per share, for the year-earlier period. 

Excluding certain items, equivalent to amortization of intangible assets and capital losses, adjusted earnings per share were $1.83 for the quarter.

CVS reported sales of $91.23 billion for the quarter, up 2.6% from the identical period a 12 months ago as a result of growth in its pharmacy business and insurance unit. 

The corporate noted that sales in its health services segment, which incorporates its pharmacy profit manager Caremark, declined throughout the second quarter. CVS cited price improvements for pharmacy clients and the loss of a big unnamed client.  

Caremark negotiates drug discounts with manufacturers on behalf of insurance policy and creates lists of medicines — or formularies — which can be covered by insurance and reimburses pharmacies for prescriptions.

Tyson Foods in January said it had dropped CVS Caremark and as a substitute selected PBM startup Rightway to administer drug advantages for its 140,000 employees starting in 2024. Months earlier, Blue Shield of California, considered one of the most important insurers in probably the most populous U.S. state, also dropped Caremark to partner with Amazon Pharmacy and Mark Cuban’s Cost Plus Drugs company. 

Those decisions represent a bigger upheaval within the health-care industry, as startups and the federal government work to extend transparency and lower costs for U.S. patients.