In this article, CVS Health reported mixed third-quarter results on Wednesday as higher medical costs impacted its bottom line. The earnings report marks CEO David Joyner’s first at the helm of the troubled retail drugstore chain. The company foresees continued pressure on its performance due to elevated medical costs this year and has refrained from providing a formal outlook at this time, as stated by a spokesperson to CNBC.
Joyner emphasized the importance of establishing credibility and trust with investors as a top priority. He highlighted the need for achievable guidance with clear opportunities for outperformance, which he considers a fundamental principle. CVS plans to defer formal 2025 guidance until next year to gain better insight into changing membership and medical cost baselines for 2024, according to CFO Tom Cowhey during an earnings call.
The company’s stock has declined by nearly 27% this year, attributed to higher medical costs within its health insurance unit, Aetna, affecting profits. CVS has experienced increased utilization post-pandemic, particularly among seniors returning to hospitals for delayed procedures. Joyner stressed the immediate focus on ensuring business stability.
On the same day, CVS appointed Steve Nelson, former CEO of UnitedHealthcare, as the new president of Aetna. Joyner and Nelson are tasked with restoring investor confidence in CVS’s ability to navigate unexpected costs effectively. Additionally, Prem Shah, a long-time company executive, will assume an expanded role overseeing retail pharmacy, pharmacy benefits, and health-care delivery businesses.
CVS shares rose over 10% following the announcements. The company’s third-quarter results included sales of $95.43 billion, a 6.3% increase from the previous year, driven by growth in its pharmacy and insurance units. Net income for the quarter was $71 million, or 7 cents per share, compared to $2.27 billion, or $1.75 per share, in the same period last year. Adjusted earnings per share were $1.09, consistent with previous estimates.
The company reported a charge of 63 cents per share, or $1.1 billion, for premium deficiency reserves in its insurance business, impacting adjusted and unadjusted earnings. CVS anticipates the release of these reserves in the fourth quarter, benefiting results. However, if medical costs persist, further charges related to anticipated losses in 2025 could affect this year’s performance.
Restructuring charges of 93 cents per share, totaling $1.17 billion, were recorded in the third quarter, including expenses for store closures and layoffs. CVS’s insurance business saw revenue growth but reported an adjusted operating loss. The medical benefit ratio increased to 95.2%, reflecting higher medical expenses relative to premiums collected.
The health services segment revenue decreased, while the pharmacy and consumer wellness division saw sales growth driven by increased prescription volume. CVS highlighted its market share in the retail pharmacy sector, reaching an all-time high of 27.3%, as stated by Joyner in a company statement.
