CVS Health Corp (CVS) delivered a mixed bag in its third-quarter earnings report, showcasing strong sales but falling short on profits. The company reported revenue of $95.43 billion, exceeding the consensus estimate of $92.75 billion. This increase was primarily fueled by growth in the Health Care Benefits and Pharmacy & Consumer Wellness segments. However, the Health Services segment saw a decline, resulting in a dip in overall profits.
Adjusted earnings per share (EPS) came in at $1.09, matching the company’s preliminary guidance of $1.05-$1.10. This figure, however, fell short of analysts’ expectations of $1.53, a significant drop from the $2.21 reported in the previous year. The decline in earnings was largely attributed to a dip in the Health Care Benefits segment’s operating results, which reflects continued pressure on utilization and premium deficiency reserves of roughly $1.1 billion related to anticipated losses in the fourth quarter of 2024 within the Medicare and individual exchange product lines. This led to a 77.5% decrease in adjusted operating income, which fell to $2.55 billion.
The company’s restructuring plan, finalized during the third quarter, also impacted the earnings. CVS Health recorded restructuring charges of approximately $1.2 billion, including store impairment charges for additional retail pharmacy stores slated to close in 2025.
Despite the challenges, certain segments performed well. Revenues in the Health Care Benefits segment surged by 25.5% to $32.99 billion. The Medical benefit ratio increased to 95.2% from 85.7% a year ago, while Medical membership reached 27.1 million. The Pharmacy & Consumer Wellness segment also saw positive growth, with revenues increasing 12.3% to $32.42 billion, driven by increased prescription volume, including contributions from vaccinations and pharmacy drug mix.
However, the Health Services segment experienced a revenue decline of 5.9% to $44.13 billion. This was attributed to a 16.5% decrease in pharmacy claims processed.
In a strategic move to navigate these challenges, CVS Health announced key leadership changes. Prem Shah was appointed as Group President, assuming responsibility for operational performance across CVS Caremark, CVS Pharmacy, and the company’s Healthcare Delivery businesses. Steve Nelson was also appointed as President of Aetna, effective immediately.
These appointments follow the recent appointment of David Joyner as the new president and CEO of CVS Health, replacing Karen Lynch amid the company’s ongoing financial struggles. The company also withdrew its 2024 guidance previously provided in the second-quarter earnings release.
The market reacted positively to the earnings report, with CVS stock soaring by 11.30% to $61.60 at the last check on Wednesday.
CVS Health’s Q3 results highlight the challenges facing the healthcare industry, particularly in the face of rising costs and changing consumer behavior. The company’s restructuring efforts and leadership changes indicate a commitment to addressing these challenges and positioning itself for future growth.
