For the second straight quarter, revenue missed expectations and the full-year profit outlook was cut
Shares of CVS Health Corp. dropped in early trading Wednesday, after the drugstore chain once again missed quarterly revenue expectations and lowered its full-year profit outlook, citing continued challenges in its healthcare-benefits business.
The company also saw weakness in its pharmacy and consumer-wellness segment during the second quarter, as both total revenue and same-store sales in its retail-pharmacy business missed expectations.
Chief Executive Karen Lynch said CVS was "taking action" to address its challenges, including making leadership changes in its healthcare-benefits business.
The stock (CVS) dropped 1.1% in premarket trading, following another disappointing earnings report. On May 1, the stock had plunged 16.8% after first-quarter results were reported.
Net income fell to $1.77 billion, or $1.41 a share, from $1.90 billion, or $1.48 a share, in the same period a year ago.
Excluding nonrecurring items, adjusted earnings per share fell to $1.83 from $2.21 but topped the FactSet consensus of $1.73.
CVS said the decline in earnings was due primarily to weak operating results in the healthcare-benefits segment, "which reflected continued utilization pressure and the unfavorable impact of the company's Medicare Advantage star ratings for the 2024 payment year within the Medicare product line."
Total revenue grew 2.6% to $91.23 billion but was below the FactSet consensus of $91.41 billion. That marked the second straight quarterly revenue miss, after beating for at least 19 straight quarters, based on available FactSet data.
Among CVS's business segments, healthcare benefits revenue rose 21.4% to $32.48 billion, above the FactSet consensus of $32.33 billion.
But adjusted operating income dropped 39.1% to $983 million and the medical-benefit ratio, in which a lower percentage means higher profitability, increased to 89.6% from 86.2%.
Medical membership as of June 30 was up 200,000, or less than 1%, from the end of March to 27.0 million members, with increases in both the Medicare and Medicaid product lines.
"Based on the current performance and outlook for the healthcare benefits segment, the company has decided to make leadership changes effective immediately," CVS said.
Brian Kane, executive vice president and president of Aetna, is leaving after less than a year at the company, and CEO Lynch will assume direct leadership of the segment.
Lynch and Chief Financial Officer Tom Cowhey will oversee the day-to-day management of the business. CVS Chief Strategy Officer Katerina Guerraz will be chief operating officer of the business.
For the health-services business, revenue fell 8.8% to $42.17 billion, hurt by the previously announced loss of a large client and continued pharmacy-client price improvements, but that beat expectations of $41.33 billion.
Pharmacy and consumer-wellness revenue rose 3.7% to $29.84 billion but missed the FactSet consensus of $30.28 billion.
Prescriptions filled increased 3.6%, but adjusted operating income dropped 12% due to continued pharmacy-reimbursement pressure and less front-store volume, including lower contributions from COVID-19 over-the-counter test kits.
Total same-store sales, typically sales of stores open at least a year, rose 6.4% but missed the FactSet consensus of 7.9% growth.
Pharmacy same-store sales were up 9.1%, but missed expectations of a 10% rise, and front store same-store sales fell 4% compared with expectations of a 0.7% decline.
For 2024, the company cut its guidance for adjusted EPS to $6.40 to $6.65 from at least $7. In CVS's first-quarter report, the guidance had been cut to at least $7 from at least $8.30.
The stock has tumbled 26.1% year to date through Tuesday, while the S&P 500 has gained 9.9%.
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