CVS Health, one of the largest health care companies in the United States, has reported fourth-quarter revenue and adjusted earnings that exceeded expectations. However, the company has reduced its full-year profit forecast due to increased medical expenses affecting the broader insurance industry. This news comes as CVS aims to transform from a major drugstore chain into a large health-care company.
For the fourth quarter, CVS reported earnings per share of $2.12, beating Wall Street’s expectations of $1.99 per share. The company’s revenue for the quarter was $93.81 billion, up almost 12% from the same period last year. The increase in revenue was primarily driven by the strength of CVS’s health services business.
Despite surpassing earnings expectations, CVS’s profit for the quarter decreased compared to the prior year. The company reported net income of $2.05 billion, or $1.58 per share, for the fourth quarter, down from $2.33 billion, or $1.77 per share, in the same period a year ago. CVS attributed this decline to higher medical costs affecting the insurance industry.
CVS lowered its adjusted earnings forecast for the full year to at least $8.30 per share, down from its previous guidance of at least $8.50 per share. The company also reduced its unadjusted earnings guidance to at least $7.06 per share, down from at least $7.26 per share. These adjustments reflect CVS’s review of its medical cost trend analysis for the fourth quarter and its recognition of the potential implications for elevated medical cost trends in 2024.
Insurance companies like CVS-owned Aetna have been experiencing a spike in medical costs as more older adults return to hospitals for procedures they had delayed during the pandemic. The increase in medical expenses is particularly evident in procedures such as joint and hip replacements.
CVS’s health services segment performed strongly in the fourth quarter, generating $49.15 billion in revenue, a 12.3% increase compared to the same quarter in 2022. This division includes CVS Caremark, which negotiates drug discounts with manufacturers on behalf of insurance plans, as well as health-care services delivered in medical clinics, through telehealth, and at home. The growth in specialty pharmacy services, brand inflation, and recent acquisitions contributed to the segment’s positive results.
The company’s health insurance segment also showed growth, generating $26.73 billion in revenue for the quarter, a 16% increase from the fourth quarter of 2022. However, sales fell short of analysts’ estimates. CVS attributed this growth to increased utilization of Medicare Advantage and the return of commercial and Medicaid use to normalized levels.
CVS’s pharmacy and consumer wellness division reported $31.19 billion in sales for the quarter, an 8.6% increase from the year-ago period. The division operates more than 9,000 brick-and-mortar retail pharmacies and provides other pharmacy services such as diagnostic testing and vaccination. The rise in sales was driven by heightened prescription volume, brand inflation, and increased contributions from vaccinations.
While CVS’s overall same-store sales grew 11.3% during the fourth quarter compared to the same period last year, there was a discrepancy in performance between the pharmacy division and the front of the store. Same-store sales in the pharmacy division jumped 15.5%, while sales in the front of the store decreased by 3.1%.
CVS’s fourth-quarter results come as the company continues its transformation into a large health-care company. Over the past year, CVS has made significant acquisitions, including the nearly $8 billion purchase of health-care provider Signify Health and the $10.6 billion deal to acquire Oak Street Health, which operates primary-care clinics for seniors.
In addition to expanding its health services business, CVS has announced plans to revamp its pricing model for prescription drugs. The new model, called CostVantage, will change how payors reimburse CVS pharmacies and is set to launch for commercial payors in 2025.
Despite the reduction in its full-year profit forecast, CVS remains optimistic about its future. The company’s strong performance in the fourth quarter, particularly in its health services segment, demonstrates its ability to adapt and grow in a changing health-care landscape. As CVS continues its transformation and navigates the challenges of increased medical expenses, it will be interesting to see how the company evolves and positions itself as a leader in the industry.
