CVS Health Corp.’s stock
CVS,
fell more than 4% premarket Wednesday, after the drug-store chain and health-services company posted stronger-than-expected third-quarter earnings but cut profit guidance for the full year and sounded downbeat on its 2024 outlook.
The company had net income of $2.265 billion, or $1.75 a share, for the quarter, after a loss of $3.399 billion, or $2.59 a share, in the year-earlier period. The company’s year-earlier results included a $5.2 billion charge related to settlement of opioid litigation.
Adjusted per-share earnings came to $2.21, ahead of the $2.13 FactSet consensus. Revenue rose to $89.764 billion from $81.159 billion, also ahead of the $88.287 billion FactSet consensus.
While results beat expectations, CVS said some headwinds in key business segments may continue into next year. In the company’s healthcare benefits unit, which offers Medicare Advantage and other health insurance plans, adjusted operating income dropped 6.4% from the year earlier, as increased utilization in Medicare Advantage plans weighed on results, CVS said.
The medical-loss ratio, or share of total healthcare premiums spent on medical claims and quality improvement, jumped to 85.7%, from 83.4% a year earlier, as Medicare Advantage members used more outpatient, dental, behavioral health, and other benefits, the company said. CVS also bumped up its outlook for its full-year medical loss ratio to 86%, and the company expects Medicare Advantage members’ higher use of services to persist next year, interim Chief Financial Officer Thomas Cowhey said on a call with analysts Wednesday.
CVS reported strong growth in its health services segment, which includes its pharmacy benefit management business. The segment’s sales rose 8.4% from a year earlier, while adjusted operating income climbed 10.8%, fueled in part by growth in specialty pharmacy, which accounts for a disproportionate share of drug spending.
Addressing the popularity and cost of GLP-1 drugs for weight loss, CVS president and CEO Karen Lynch said on the call Wednesday, “it could cost the U.S. $1 trillion if every American that is considered obese, and that’s about 70 million Americans, were prescribed” the drugs. “It is imperative for us as a PBM to really reduce the overall cost of those drugs, and we’re working very closely with our customers to do that,” Lynch said.
As for the potential for PBM reform legislation to move forward in Congress this year, Lynch said on the call that some action could come at the end of the year. Any changes would likely focus on transparency, Lynch said, “which we are fully aware of and have contemplated in our business.”
Interest expense jumped more than 22% in the quarter, CVS said, due to higher debt to fund its acquisitions of Signify Health and Oak Street Health.
On the call Wednesday morning, CVS executives sought to rein in expectations for the coming year. Based on the headwinds the company is seeing, including the uncertainty created by the higher utilization trends, “we believe it is prudent for investors to ground their expectations for 2024 adjusted EPS at the low end of our previously communicated preliminary guidance range of $8.50 to $8.70,” Cowhey said on the call.
The company is now expecting full-year 2023 EPS to range from $6.37 to $6.61, down from prior guidance of $6.53 to $6.75. Adjusted EPS for the full year 2023 is still expected at $8.50 to $8.70.
The stock has fallen 26% in the year to date, while the S&P 500
SPX,
has gained 9%.
