CVS Health Corp. warned investors that profit over the next two years will be hurt as medical expenses rise in its insurance unit and the company cuts costs amid a shift to widened services.
(Bloomberg) — CVS Health Corp. warned investors that profit over the next two years will be hurt as medical expenses rise in its insurance unit and the company cuts costs amid a shift to widened services.
The company expects 2024 adjusted profit of $8.50 to $8.70 a share, equal to this year’s guidance, Chief Financial Officer Shawn Guertin said on a call with investors. It previously projected $9. It’s also abandoning its 2025 target of $10 a share.
US insurers fell in June after comments from a UnitedHealth Group Inc. executive raised concerns about increased medical costs, but the company’s second-quarter results eased those fears. However, CVS’s medical benefit ratio, a measure of how much premium revenue it spent on patient care, came in higher than expected this quarter.
“While there is uncertainty surrounding the duration of this utilization spike, our 2023 guidance now prudently assumes that these medical cost trends will remain elevated for the rest of 2023,” he said.
Lower demand for Covid-related products could also be a headwind, Guertin said, as well as a weakening consumer environment and the cost of building new clinics for primary-care acquisition Oak Street Health Inc.
CVS created a restructuring plan during the second quarter intended to streamline and simplify the business and reduce costs, according to a statement Wednesday, and recorded a $496 million pre-tax charge for the program.
Meanwhile, shares of rival health insurer Humana Inc. rose as much as 5.7% at the New York market open, the most intraday since January, after it reported adjusted profit above analysts’ expectations. The company, which focuses on private Medicare plans for seniors, said the use of medical care was stabilizing “based on most recent claims activity.” Humana had also warned in June of rising medical expenses tied to emergency visits, surgeries and dental care.
CVS shares gained as much as 1.9% in New York.
Retail Roots
CVS has been taking steps to move away from its retail roots and expand further into other dimensions of health care, in part with the recent acquisitions of Oak Street and home health-care provider Signify Health Inc. CVS said Tuesday that it would cut 5,000 jobs from its workforce as part of an initiative to re-prioritize investments around care delivery and technology.
Adjusted earnings for the second quarter were $2.21 a share, according to the statement, beating the $2.10 average estimate of analysts surveyed by Bloomberg. Revenue rose 10% from a year ago to $88.9 billion, also exceeding estimates.
Operating income in the Aetna health insurance unit decreased 20%, although sales beat estimates. The medical benefit ratio was 86.2%, while analysts had predicted 84.6%.
While sales in the pharmacy and consumer wellness segment beat estimates at $28.8 billion in the quarter, operating income fell 17%, reflecting pressure on drug reimbursements, lower front-of-store sales and falling demand for Covid-19 tests and vaccines, CVS said. Revenue in the health-services segment, the company’s largest, rose to $46.2 billion, also exceeding Street views.
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