CVS Health (CVS) earnings Q4 2024

CVS Health on Wednesday reported fourth-quarter revenue and profit that topped estimates, whilst its troubled insurance business continued to see higher medical costs. 

The corporate also issued a full-year 2025 adjusted earnings outlook of $5.75 to $6 per share, which was according to Wall Street’s expectations. But CVS didn’t provide a revenue forecast for the yr. 

It caps off the primary 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 corporate underwent a management reshuffle as a part of a broader turnaround plan that features $2 billion in cost cuts over the subsequent 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 prescribed 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: 

• Earnings per share: $1.19 per share adjusted vs. 93 cents per share expected
• Revenue: $97.71 billion vs. $97.19 billion expected

The corporate’s shares closed 15% higher on Wednesday.

CVS and other insurers akin to UnitedHealth Group and Humana have seen medical costs spike over the past yr as more Medicare Advantage patients return to hospitals for procedures they delayed through the pandemic. 

Medicare Advantage, a privately run medical insurance plan contracted by Medicare, has long been a driver of growth and profits for insurers. But investors have turn into concerned in regards to the runaway costs tied to those plans, which cover greater than half of all Medicare beneficiaries. 

CVS booked sales of $97.71 billion for the fourth quarter, up 4.2% from the identical period a yr ago attributable to growth in its pharmacy business and insurance unit. 

The corporate 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, akin to 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 rankings for the 2024 payment yr, each of which weighed on the segment’s operating results for the quarter. Those star rankings help Medicare patients compare the standard of Medicare health and drug plans. 

But CVS expects to enhance margins in its Medicare Advantage business in 2025, partly by shrinking its membership in those plans by a “high single-digit percentage” from the tip of 2024, Joyner said on an earnings call on Wednesday. He added that the corporate has improved Medicare Advantage star rankings for the yr.

“Our focus stays on delivering on our commitments to our Medicare Advantage members while making a viable path to appropriate margins,” Joyner said.

Firms can determine to stop covering patients in markets that they determine are unprofitable, and patients who lose insurance can enroll in a latest 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 through the quarter, up greater than 23% from the fourth quarter of 2023. Analysts expected the unit to absorb $32.89 billion for the period, in accordance with estimates from StreetAccount.

However the business reported an adjusted operating lack of $439 million for the fourth quarter, compared with adjusted operating income of $676 million within the year-earlier period. That change was driven by higher medical costs and the corporate’s Medicare Advantage star rankings, amongst other aspects.

The insurance unit’s medical profit ratio — a measure of total medical expenses paid relative to premiums collected — increased to 94.8% from 88.5% a yr earlier. A lower ratio typically indicates that an organization collected more in premiums than it paid out in advantages, leading to 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 within the fourth quarter was less severe than what we assumed,” CVS CFO Thomas Cowhey said on the decision.

CVS’ health services segment generated $47.02 billion in revenue for the quarter, down greater than 4% compared with the identical quarter in 2023. Analysts expected the unit to post $44.06 billion in sales for the period, in accordance with StreetAccount.

That unit includes Caremark, certainly one of the nation’s largest pharmacy profit managers. Caremark negotiates drug discounts with manufacturers on behalf of insurance coverage and creates lists of medicines, or formularies, which might be covered by insurance and reimburses pharmacies for prescriptions.

CVS’ health services division processed 499.4 million pharmacy claims through the quarter, down from 600.8 million through the year-ago period attributable to the lack of an unnamed large client. Tyson Foods told CNBC in January 2024 that it dropped CVS because the pharmacy profit manager for its roughly 140,000 employees, nevertheless it is unclear if every other corporations stopped working with CVS through the yr, as well.