CVS Health on Wednesday reported fourth-quarter revenue and adjusted earnings that topped expectations, but the corporate cut its full-year profit outlook, citing higher medical costs which might be dogging the broader insurance industry.
The corporate lowered its 2024 adjusted earnings forecast to no less than $8.30 per share, down from a previous guidance of no less than $8.50 per share. Analysts surveyed by LSEG were expecting full-year adjusted earnings of $8.49 per share.
CVS also cut its unadjusted earnings guidance to no less than $7.06 per share, down from no less than $7.26 per share.
The corporate said its latest guidance follows a review of its medical cost trend evaluation for the fourth quarter and a recognition of the “potential implications” for elevated medical cost trends in 2024. CVS owns health insurer Aetna.
“Our guidance prudently assumes that the elevated medical cost trends we observed within the fourth quarter will carry forward into 2024,” CVS Chief Financial Officer Tom Cowhey said on an earnings call Wednesday.
Insurers equivalent to Humana have been seeing medical costs spike as an increasing variety of older adults return to hospitals to undergo procedures that they had delayed in the course of the pandemic, equivalent to joint and hip replacements.
Here’s what CVS reported for the fourth quarter compared with what Wall Street was expecting, based on a survey of analysts by LSEG, formerly referred to as Refinitiv:
- Earnings per share: $2.12 adjusted vs. $1.99 expected
- Revenue: $93.81 billion vs. $90.41 billion expected
Shares of CVS rose almost 3% in morning trading Wednesday.
CVS booked sales of $93.81 billion for the quarter, up almost 12% from the identical period a yr ago. That increase was mainly driven by strength in its health services business.
While CVS beat earnings expectations, its profit shrank from the prior yr.
The corporate 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 a similar period a yr ago.
Excluding certain items, equivalent to 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 is going to revamp the way it prices pharmaceuticals and scrap a fancy model that typically sets how much pharmacies get reimbursed and what patients pay for those medications. The corporate plans to launch a latest model, called CostVantage, for a way payors will reimburse its pharmacies. That model will first apply to industrial payors starting in 2025.
The outcomes also come as CVS pushes to rework from a serious drugstore chain right into a large health-care company. CVS deepened that push during the last yr with its nearly $8 billion acquisition of health-care provider Signify Health and a $10.6 billion deal to purchase Oak Street Health, which operates primary-care clinics for seniors.
The corporate’s health services segment generated $49.15 billion in revenue for the quarter, a 12.3% increase compared with the identical quarter in 2022.
The division includes CVS Caremark, which negotiates drug discounts with manufacturers on behalf of insurance policy, in addition to health-care services delivered in medical clinics, through telehealth and at home.
Those sales blew past analysts’ estimate of $46.35 billion in revenue for the period, in line with StreetAccount.
CVS said the rise was driven partly by growth in specialty pharmacy services, which help patients who’re affected by complex disorders and require specialized therapies. The corporate added that brand inflation and its recent acquisitions also boosted the segment results.
The health services division processed 600.8 million pharmacy claims in the course of the quarter, which is flat from the year-ago period.
Signify accomplished 649,000 in-home evaluations in the course of the quarter, CVS executives said in the course of the call. Oak Street ended the quarter with 204 centers, and thru January, the variety of Aetna members enrolled in Oak Street clinics has doubled, they added.
CVS’ medical health insurance segment generated $26.73 billion in the course of the quarter, a roughly 16% increase from the fourth quarter of 2022. The division includes plans by Aetna for the Inexpensive Care Act, Medicare Advantage and Medicaid, in addition to dental and vision.
Sales fell in need of analysts’ estimate of $27.09 billion for the quarter, in line with StreetAccount.
The insurance segment’s medical profit ratio — a measure of total medical expenses paid relative to premiums collected — increased to 88.5% from 85.8% a yr earlier. A lower ratio typically indicates that the corporate collected more in premiums than it paid out in advantages, leading to higher profitability.
Analysts had expected that ratio to be 88.1%, in line with StreetAccount estimates.
CVS said the rise was mainly driven by increased utilization of Medicare Advantage, including outpatient and supplemental care advantages, equivalent to dental and vision. Industrial and Medicaid use also returned to normalized levels, the corporate added.
A CVS inside a Goal store in Miami Beach, Florida.
Jeff Greenberg | Universal Images Group | Getty Images
The corporate’s pharmacy and consumer wellness division booked $31.19 billion in sales for the quarter, up 8.6% from the year-ago period. That segment dispenses prescriptions in CVS’ greater than 9,000 brick-and-mortar retail pharmacies and provides other pharmacy services, equivalent to diagnostic testing and vaccination.
Analysts had expected the division to herald $30.15 billion in sales, in line with StreetAccount.
CVS said the rise was driven by heightened prescription volume, brand inflation and increased contributions from vaccinations, amongst others aspects.
The division filled 431.5 million prescriptions in the course of the quarter, up barely from 423.4 million for the year-earlier period.
Same-store sales for CVS grew 11.3% in the course of the three-month period compared with the identical time a yr earlier, but not equally across the shop. Same-store sales jumped 15.5% within the pharmacy division, but were down by 3.1% within the front of the shop.
Don’t miss these stories from CNBC PRO: