CVS Health lowers guidance after mixed second quarter

CVS Health Corporation revealed a mixed second-quarter performance on Wednesday, as well as a downward revision to its full-year earnings guidance due to continued pressure in its health care benefits segment.

The pharmacy and healthcare giant reported total revenue of $91.2bn for the quarter - a 2.6% increase compared to the same period last year.

However, its adjusted earnings per share fell to $1.83 from $2.21, although that still beat analysts’ expectations of $1.74.

The health care benefits segment, which includes Aetna, experienced a significant 39.1% decline in adjusted operating income.

That was largely driven by increased medical utilisation among older adults, higher costs associated with Medicare Advantage, and the resumption of Medicaid redeterminations.

The segment's medical benefit ratio rose to 89.6%, up from 86.2% a year earlier, indicating higher medical costs relative to premiums received.

CVS Health's health services segment, which includes its pharmacy benefit management operations, reported an 8.8% decrease in revenue due to the loss of a large client and ongoing pricing pressures.

Despite the setbacks, the segment managed to achieve a modest 1.1% increase in adjusted operating income, supported by improved purchasing economics and growth in specialty pharmacy services.

The pharmacy and consumer wellness segment saw a 3.7% increase in revenue, driven by higher prescription volumes.

However, its adjusted operating income fell by 12%, impacted by continued pharmacy reimbursement pressures and a decrease in front-store sales following the end of the Covid-19 public health emergency.

As a result of the mixed outcomes, CVS revised its full-year 2024 guidance downward.

The company said it now expected adjusted earnings per share in the range of $6.40 to $6.65, down from its previous estimate of at least $7.00.

Additionally, CVS reduced its cash flow from operations guidance to approximately $9bn, from an earlier estimate of at least $10.5bn.

The company acknowledged the challenging environment in its health care benefits segment and announced leadership changes, with chief executive Karen Lynch assuming direct oversight of the division.

CVS also revealed a multi-year plan aimed at saving $2bn by streamlining operations and incorporating more automation and artificial intelligence across its business units.

“We have many points of differentiation that position us to win now and into the future,” said the company’s president and chief executive officer Karen Lynch.

“Our innovation is accelerating more transparent pharmacy reimbursement models, increasing the use of biosimilars, and providing better patient outcomes through our connected health care delivery assets.”

Lynch said the company’s integrated model and strategy were enabling it to execute in a challenging environment, adding that it was delivering the value its customers demanded.

“We are taking action today to ensure we make the most of our many opportunities, including leadership changes in the health care benefits segment.”

At 1155 EDT (1655 BST), shares in CVS Health Corporation were down 1.01% in New York at $57.75.

Reporting by Josh White for Sharecast.com.