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CVS Heath (CVS) This autumn 2023 earnings

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A CVS location in New York, US, on Thursday, Feb. 9, 2023.

Stephanie Keith | Bloomberg | Getty Photographs

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CVS Health on Wednesday reported fourth-quarter income and adjusted earnings that topped expectations, however the firm reduce its full-year revenue outlook, citing higher medical costs which are dogging the broader insurance industry.

The corporate lowered its 2024 adjusted earnings forecast to at the least $8.30 per share, down from a earlier steering of at the least $8.50 per share. Analysts surveyed by LSEG have been anticipating full-year adjusted earnings of $8.49 per share. 

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CVS additionally reduce its unadjusted earnings steering to $7.06 per share, down from at the least $7.26 per share. 

The corporate mentioned its new steering follows a evaluation of its medical price development evaluation for the fourth quarter and a recognition of the “potential implications” for elevated medical price tendencies in 2024. CVS owns well being insurer Aetna

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Insurers akin to Humana have been seeing medical costs spike as an growing variety of older adults return to hospitals to endure procedures they’d delayed throughout the pandemic, akin to joint and hip replacements. 

Here is what CVS reported for the fourth quarter in contrast with what Wall Road was anticipating, based mostly on a survey of analysts by LSEG, previously often known as Refinitiv:

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  • Earnings per share: $2.12 adjusted vs. $1.99 anticipated
  • Income: $93.81 billion vs. $90.41 billion anticipated

CVS booked gross sales of $93.81 billion for the quarter, up virtually 12% from the identical interval a 12 months in the past. That improve was primarily pushed by energy in its well being providers enterprise.

Whereas CVS beat earnings expectations, its revenue shrank from the prior year

The corporate reported web earnings of $2.05 billion, or $1.58 per share, for the fourth quarter. That compares with a web earnings of $2.33 billion, or $1.77 per share, for a similar interval a 12 months in the past. 

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Excluding sure gadgets, akin to amortization of intangible belongings and capital losses, adjusted earnings per share have been $2.12 for the quarter.

The fourth-quarter outcomes come two months after CVS mentioned it can revamp the way it costs pharmaceuticals and scrap a posh mannequin that sometimes units how a lot pharmacies get reimbursed and what sufferers pay for these drugs. The corporate plans to launch a new model, referred to as CostVantage, for a way payors will reimburse its pharmacies. That mannequin will first apply to business payors beginning in 2025.

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The outcomes additionally come as CVS pushes to remodel from a significant drugstore chain into a big health-care firm. The corporate deepened that push over the past 12 months with its practically $8 billion acquisition of health-care supplier Signify Health and a $10.6 billion deal to purchase Oak Street Health, which operates primary-care clinics for seniors.

CVS will maintain an earnings call with traders at 8:00 a.m. ET on Wednesday.

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Power in well being providers enterprise

The corporate’s well being providers section generated $49.15 billion in income for the quarter, a 12.3% improve in contrast with the identical quarter in 2022. 

The division contains CVS Caremark, which negotiates drug reductions with producers on behalf of insurance policy, in addition to health-care providers delivered in medical clinics, by telehealth and at dwelling.

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These gross sales blew previous analysts’ estimate of $46.35 billion in income for the interval, based on StreetAccount. 

CVS mentioned the rise was pushed partly by progress in specialty pharmacy providers, which assist sufferers who’re affected by advanced problems and require specialised therapies. The corporate added that model inflation and its latest acquisitions additionally boosted the section outcomes. 

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The well being providers division processed 600.8 million pharmacy claims throughout the quarter, which is flat from the year-ago interval. 

Different divisions present progress

CVS’s medical health insurance section generated $26.73 billion throughout the quarter, a roughly 16% improve from the fourth quarter of 2022. The division contains plans by Aetna for the Inexpensive Care Act, Medicare Benefit and Medicaid, in addition to dental and imaginative and prescient.

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Gross sales fell in need of analysts’ estimate of $27.09 billion for the quarter, based on StreetAccount. 

The insurance coverage section’s medical profit ratio — a measure of complete medical bills paid relative to premiums collected — elevated to 88.5% from 85.8% a 12 months earlier. A decrease ratio sometimes signifies that the corporate collected extra in premiums than it paid out in advantages, leading to larger profitability.

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Analysts had anticipated that ratio to be 88.1%, based on StreetAccount estimates. 

CVS mentioned the rise was primarily pushed by elevated utilization in Medicare Benefit, together with outpatient and supplemental care advantages. Industrial and Medicaid use additionally returned to normalized ranges, the corporate added. 

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A CVS inside a Goal retailer in Miami Seashore, Florida.

Jeff Greenberg | Common Photographs Group | Getty Photographs

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The corporate’s pharmacy and shopper wellness division booked $31.19 billion in gross sales for the quarter, up 8.6% from the year-ago interval. That section dispenses prescriptions in CVS’s greater than 9,000 brick-and-mortar retail pharmacies and gives different pharmacy providers, akin to diagnostic testing and vaccination. 

Analysts had anticipated the division to usher in $30.15 billion in gross sales, based on StreetAccount.

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CVS mentioned the rise was pushed by heightened prescription quantity, model inflation and elevated contributions from vaccinations, amongst others components.

The division crammed 431.5 million prescriptions throughout the quarter, up barely from 423.4 million for the year-earlier interval. 

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Similar-store gross sales for CVS grew 11.3% throughout the three-month interval in contrast with the identical time a 12 months earlier, however not equally throughout the shop. Similar-store gross sales jumped 15.5% within the pharmacy division, however have been down by 3.1% within the entrance of the shop.

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