The CVS Pharmacy logo is available on July 9, 2024 in Washington, DC, USA.
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CVS Health Thursday reported first-quarter revenue and revenue exceeded estimates and came on guidance as the troubled insurance business showed some improvement during the period.
CVS shares rose 7% in listing trading Thursday.
The company now expects full-year adjusted earnings of $6 to $6.20, up from previous guidance of $5.75 to $6 per share.
But the company has revised its GAAP dilution EPS guidelines to be lower, including allegations related to legal battles involving Omnicare, a subsidiary of its pharmacy service provider. This week's jury ruled that OMNICARE is responsible for distributing drugs in assisted living and long-term care facilities with valid prescriptions to seniors and persons with disabilities. CVS Plan Appeal.
The company did not provide revenue forecasts for the year. CVS said that given the continued higher health care costs and the “potential for huge headwinds”, “keep a cautious view for the rest of the year.”
"We're smarter about the market we want and the life we want to compete, so we've actually planned and budgeted for the trend," CVS CEO David Joyner said in an interview with CNBC.
He added: “So, I think why you didn’t see our surprise because we actually planned the upward trend this year.”
Joyner says the company is focusing on the potential impact of President Donald Trump's planned tariffs on imports of drugs imported from the United States
“When it comes to pharmacies, I think it depends a lot on what happens in the next week or two when they announce what the tariffs mean to manufacturers,” he told CNBC. Joyner added that the vast majority of retail products in front of the store were sourced in the U.S., “It should be in our favor.”
According to LSEG's survey of analysts, CVS reported this in the first quarter compared to Wall Street expectations:
The company's insurer Aetna and its competitors were plagued by higher-than-expected medical expenses last year as more Medicare Advantage patients returned to hospitals for delayed procedures during the pandemic. However, in several quarters, CVS's insurance business appears to show some signs of improvement for the first time.
The unit's medical benefit rate (measures of total medical expenses paid for collection premiums) fell to 87.3% from 90.4% in the same period last year. Lower rates usually indicate that companies collect more premiums than benefits pay for, resulting in higher profitability.
CVS said the move partially reflects stronger potential performance in its Medicare business and improves the Medicare Advantage Star rating for the 2025 payment year. These scores help patients compare the quality of Medicare health and medication programs.
“I think that the investments and talent that enable us to focus on execution and operations… actually helps to establish the performance you see,” Joyner said.
The result ended the second full quarter, with CVS long-time executive Joyner as CEO of the retail pharmacy chain. Joyner replaced Karen Lynch in mid-October as CVS struggled to earn higher profits and improve its stock performance.
The company underwent a management restructuring as part of a broader turnaround plan that includes $2 billion in cost cuts over the next few years.
Nevertheless, the performance of CVS is partially offset by the $431 million charge in the insurance policy’s so-called premium defect reserve, which is related to the expected loss for the 2025 underwriting year. This refers to the liability that an insurer may have to bear if future premiums are not sufficient to cover the expected claims and expenses.
The company released net revenue in the first quarter of $1.78 billion, or $1.41 per share. By comparison, net income was $1.12 billion, or 88 cents per share.
Excluding certain items, such as amortization of intangible assets, restructuring expenses and capital losses, adjusted revenue is $2.25 per share for the quarter.
CVS's scheduled sales in the first quarter were $94.59 billion, up 7% from the same period due to growth in all three of its business areas.
But, according to StreetAccount, the company's retail pharmacy sales missed Wall Street's expectations for the quarter. The business is under pressure to reduce reimbursement for softer consumer spending and prescription drugs.
CVS's insurance business booked $34.81 billion in revenue in the quarter, an increase of 8% from the first quarter of 2024. Analysts expect the unit to receive $33.51 billion during the period.
The department also recorded adjusted operating income of $1.99 billion in the first quarter, compared with an increasing maturity of $732 million for the year.
CVS also said Thursday that Aetna will stop providing health insurance plans for the Affordable Care Act market (also known as personal communication) starting in the 2026 program year.
CVS's Pharmacy and Consumer Health Department booked $31.91 billion in sales in the first quarter, up more than 11% from the same period last year.
However, that is far below the $35.27 billion analysts expect.
The unit is prescribed in more than 9,000 retail pharmacies at CVS and offers other pharmacies such as vaccination and diagnostic testing.
CVS's health services sector generated revenue of $43.46 billion for the quarter, up nearly 8% from the same quarter in 2024. Analysts expect the unit to sell $43.64 billion in sales over the period.
The department includes Caremark, one of the largest pharmacy welfare managers in the United States. Caremark offers drug discounts on behalf of the insurance plan with the manufacturer and creates a list of drugs or formulas covered by the insurance and reimburse the cost of prescription drugs.