In a move that signals the ongoing struggles of CVS Health, the pharmacy giant has appointed longtime executive David Joyner as its new president and CEO, replacing Karen Lynch. This leadership change comes as the company grapples with financial challenges and a looming earnings miss.
Joyner, who previously served as president of CVS Caremark and executive vice president, steps into the top role as Roger Farah, CVS’s board chairman, assumes the position of executive chair. The company’s announcement coincided with a warning that its third-quarter earnings, slated for release on November 6, will fall short of Wall Street projections.
The company revealed preliminary third-quarter 2024 adjusted earnings per share (EPS) of $1.05-$1.10, significantly lower than the consensus estimate of $1.70. Analysts are also anticipating sales of $92.73 billion. The company attributed these shortcomings to a $1.1 billion charge to record premium deficiency reserves (PDRs), primarily related to its Medicare and Individual Exchange businesses within the Health Care Benefits segment. These PDRs reduced the adjusted EPS for the third quarter by $0.63.
Further compounding the company’s financial woes, CVS disclosed that it has experienced persistent medical cost trends exceeding its previous projections. The Medical Benefit Ratio for the third quarter is anticipated to be approximately 95.2%, a figure that includes a 220-basis point impact from the PDRs. In light of these persistent medical cost pressures, the company has withdrawn its previous guidance for the Health Care Benefits segment.
The challenges facing CVS Health extend beyond its recent financial performance. The company is also facing scrutiny from the Federal Trade Commission (FTC) for alleged unfair and anti-competitive practices related to its pharmacy benefit manager (PBM) business. The FTC has filed a formal complaint against three major PBMs, including CVS Health’s Caremark, Cigna Corp’s Express Scripts, and UnitedHealth Group Inc’s Optum, accusing them of manipulating insulin medication list prices.
Adding to the pressure, CVS Health is exploring a potential major restructuring that could involve separating its retail and insurance businesses. The company has engaged with financial advisors to assess the feasibility of such a breakup, although no final decisions have been made.
This latest news sent shockwaves through the market, causing CVS stock to plummet by 12.30% to $55.87 during the premarket session on Friday. The company’s struggles highlight the increasing challenges faced by healthcare providers in navigating rising medical costs and regulatory scrutiny. As CVS Health navigates this turbulent period, investors will be closely watching to see how the company addresses these issues and whether its new leadership can turn the tide.
