CVS
Cvs Health CORP
NYSE
8-K: CVS Health Revises 2024 Guidance After Q1 Results Show Medicare Utilization Pressure
Sentiment:
Quarterly Report
1 May 2024 6:32 AM
CVS Health lowered its full-year 2024 earnings and cash flow guidance due to higher than expected medical costs, particularly in its Medicare Advantage business, despite a revenue increase in the first quarter.
Worse than expected
The company's earnings per share and cash flow guidance were significantly lowered due to higher than expected medical costs.
The Health Care Benefits segment experienced a substantial decrease in adjusted operating income, indicating worse than expected performance.
The medical benefit ratio increased significantly, reflecting higher healthcare costs than anticipated.
Summary
- CVS Health reported a 3.7% increase in total revenues to $88.4 billion for the first quarter of 2024 compared to the prior year.
- However, GAAP diluted earnings per share decreased to $0.88 from $1.65, and adjusted EPS fell to $1.31 from $2.20 year-over-year.
- The company revised its full-year 2024 GAAP diluted EPS guidance to at least $5.64 from at least $7.06 and adjusted EPS guidance to at least $7.00 from at least $8.30.
- Full-year 2024 cash flow from operations guidance was also revised down to at least $10.5 billion from at least $12.0 billion.
- The primary driver for the reduced guidance is increased medical utilization, particularly within the Medicare Advantage business.
- The Health Care Benefits segment saw a significant decrease in adjusted operating income, down 59.9%, due to higher Medicare utilization and the impact of lower Medicare Advantage star ratings.
- The Health Services segment experienced a 9.7% decrease in total revenues, primarily due to the loss of a large client and pharmacy client price improvements.
- The Pharmacy & Consumer Wellness segment saw a 2.9% increase in total revenues, driven by increased prescription volume.
Sentiment
Score: 3
Explanation: The sentiment is negative due to the significant downward revision of earnings and cash flow guidance, driven by higher medical costs and utilization. While revenue increased, the profitability and future outlook are concerning.
Highlights
- Total revenues for Q1 2024 increased by 3.7% year-over-year to $88.4 billion.
- GAAP diluted EPS decreased to $0.88 from $1.65 in the prior year.
- Adjusted EPS decreased to $1.31 from $2.20 in the prior year.
- The company revised its full-year 2024 GAAP diluted EPS guidance to at least $5.64 from at least $7.06.
- The company revised its full-year 2024 Adjusted EPS guidance to at least $7.00 from at least $8.30.
- Full-year 2024 cash flow from operations guidance was revised to at least $10.5 billion from at least $12.0 billion.
- The Health Care Benefits segment's adjusted operating income decreased by 59.9% due to increased Medicare utilization.
- The Health Services segment's total revenues decreased by 9.7% due to the loss of a large client.
- The Pharmacy & Consumer Wellness segment's total revenues increased by 2.9% due to increased prescription volume.
- Medical benefit ratio (MBR) for the Health Care Benefits segment increased to 90.4% from 84.6% in the prior year.
Positives
- Total revenues increased by 3.7% year-over-year, reaching $88.4 billion.
- The Pharmacy & Consumer Wellness segment saw a 2.9% increase in total revenues, driven by increased prescription volume.
- Medical membership increased by 1.3 million members year-over-year, reaching 26.8 million.
- Cash flow from operations was $4.9 billion for the quarter.
Negatives
- GAAP diluted EPS decreased by $0.77 year-over-year, falling to $0.88.
- Adjusted EPS decreased by $0.89 year-over-year, falling to $1.31.
- The Health Care Benefits segment experienced a 59.9% decrease in adjusted operating income.
- The Health Services segment saw a 9.7% decrease in total revenues.
- The company significantly lowered its full-year 2024 earnings and cash flow guidance.
- The medical benefit ratio (MBR) increased to 90.4%, indicating higher healthcare costs.
- Pharmacy claims processed decreased by 21.2% due to the loss of a large client.
Risks
- Continued elevated medical cost trends, particularly in the Medicare business, are expected to persist throughout 2024.
- The loss of a large client in the Health Services segment is negatively impacting revenue.
- Pharmacy client price improvements are putting pressure on the Health Services segment's revenue.
- The company faces challenges related to its Medicare Advantage star ratings.
- Increased interest expense due to higher debt levels is impacting profitability.
Future Outlook
CVS Health has revised its full-year 2024 guidance downward, anticipating that the elevated medical cost trends observed in the first quarter will persist throughout the year. The company now expects GAAP diluted EPS of at least $5.64 and adjusted EPS of at least $7.00, with cash flow from operations of at least $10.5 billion.
Management Comments
- The current environment does not diminish our opportunities, enthusiasm, or the long-term earnings power of our company.
- We are confident we have a pathway to address our near-term Medicare Advantage challenges.
- We remain committed to our strategy and believe that we have the right assets in place to deliver value to our customers, members, patients, and shareholders.
Industry Context
The results reflect broader challenges in the healthcare industry, particularly with rising medical costs and utilization rates, especially in the Medicare Advantage sector. Competitors in the health insurance and pharmacy benefit management space are likely facing similar pressures, making this a key trend to watch.
Comparison to Industry Standards
- UnitedHealth Group, a major competitor in the health insurance space, has also reported increased medical costs, indicating a broader industry trend.
- Other pharmacy benefit managers like Express Scripts may be experiencing similar pressures on pricing and client retention.
- The increase in the medical benefit ratio is a key metric that will be closely watched by investors and compared to peers like Humana and Centene.
- CVS's revised guidance is a significant adjustment and will likely be compared to the performance and outlook of its major competitors in the coming quarters.
Stakeholder Impact
- Shareholders will be negatively impacted by the reduced earnings and cash flow guidance.
- Customers may see changes in their healthcare plans and costs.
- Employees may experience uncertainty due to the company's performance challenges.
- Suppliers may be affected by changes in the company's purchasing patterns.
Next Steps
- The company will hold a conference call to discuss the first quarter results.
- CVS Health will need to address the challenges in its Medicare Advantage business to improve future performance.
- The company will likely focus on cost management and operational efficiencies to mitigate the impact of higher medical costs.
Key Dates
- May 1, 2024: Date of the press release announcing Q1 2024 results and revised full-year guidance.
- March 31, 2024: End of the first quarter of 2024, the period covered by the financial results.
Keywords
CVS Health, Medicare Advantage, Earnings, Guidance, Healthcare, Pharmacy, Medical Benefit Ratio, PBM, EPS, Revenue
CVS
Cvs Health CORP
NYSE
Sector: TBD
Filings with Classifications
Delay expected
4 April 2025 4:03 PM
Definitive Proxy Statement
- The Health Services segment results fell below expectations, primarily due to a one quarter delay in the full rollout of our Cordavis biosimilars business.
Worse than expected
4 April 2025 4:03 PM
Definitive Proxy Statement
- The company did not meet threshold 2024 PSU Adjusted EPS performance for the 2022-2024 PSUs, resulting in a 0% payout.
- MIP Adjusted Operating Income metric achieved below threshold performance.
Delay expected
14 March 2025 5:02 PM
SEC Filing Form 4
- The gift of shares by the reporting person to a donor-advised charitable family foundation on November 18, 2022 was not timely reported due to an administrative error.
Worse than expected
12 February 2025 6:47 AM
Annual Results
Worse than expected
12 February 2025 6:32 AM
Earnings Release
- The company's GAAP and Adjusted EPS decreased compared to the prior year, indicating worse than expected profitability.
- The Health Care Benefits segment reported an adjusted operating loss, which is worse than the operating income in the prior year.
Capital raise
10 December 2024 4:33 PM
Debt Issuance Announcement
- CVS Health Corporation issued $2.25 billion of 7.000% Fixed-to-Fixed Rate Series A Junior Subordinated Notes due 2055.
- CVS Health Corporation issued $750 million of 6.750% Fixed-to-Fixed Rate Series B Junior Subordinated Notes due 2054.
Capital raise
9 December 2024 7:08 AM
Debt Tender Offer Announcement
- CVS Health will fund the purchase of the tendered notes with proceeds from the issuance of 7.000% Series A Junior Subordinated Notes due 2055 and 6.750% Series B Junior Subordinated Notes due 2054.
Capital raise
4 December 2024 6:53 PM
Debt Offering Announcement
- CVS Health is raising $3 billion through the issuance of junior subordinated notes.
- The offering is split into two series: $2.25 billion in Series A notes and $750 million in Series B notes.
- The net proceeds are expected to be approximately $2,963,075,700 after deducting underwriter discounts and estimated offering expenses.
Capital raise
2 December 2024 9:50 AM
Debt Tender Offer Announcement
- CVS Health plans to issue new subordinated debt securities to fund the cash tender offers.
- The amount of the new debt issuance is expected to be sufficient to cover the purchase of all tendered notes, accrued interest, and fees associated with the tender offers.
Worse than expected
6 November 2024 6:35 AM
Quarterly Report
- The company's net income and operating income were significantly lower than expected due to restructuring charges and increased healthcare costs.
- The Health Care Benefits segment's performance was worse than expected due to increased utilization and premium deficiency reserves.
- The company's medical benefit ratio (MBR) was higher than expected, indicating higher healthcare costs.
Worse than expected
6 November 2024 6:33 AM
Quarterly Report
- The company's GAAP and adjusted EPS were significantly lower than the previous year due to a decline in the Health Care Benefits segment and premium deficiency reserves.
- Operating income decreased by 77.5% due to the decline in adjusted operating income and restructuring charges.
- Adjusted operating income decreased by 42.8% due to the Health Care Benefits segment's performance.
Worse than expected
18 October 2024 6:46 AM
Leadership Change and Preliminary Quarterly Results
- The company's preliminary Q3 2024 results are worse than expected due to higher medical costs and significant charges for premium deficiency reserves and restructuring.
- The company has withdrawn its previous financial guidance, indicating a significant deviation from prior expectations.
Worse than expected
7 August 2024 6:35 AM
Quarterly Report
- The company's operating income and net income decreased year-over-year, indicating worse than expected profitability.
- The Health Care Benefits segment experienced a higher medical benefit ratio, indicating higher than expected healthcare costs.
- The Health Services segment saw a decrease in revenue due to the loss of a large client, which was worse than expected.
Worse than expected
7 August 2024 6:33 AM
Quarterly Report
- The company lowered its full-year earnings and cash flow guidance, indicating worse than expected results.
- The Health Care Benefits segment experienced a significant decline in operating results, contributing to the worse than expected performance.
- The adjusted EPS for the second quarter was lower than the prior year, indicating worse than expected profitability.
Capital raise
9 May 2024 4:19 PM
Debt Issuance Announcement
- CVS Health Corporation issued $5 billion in senior notes.
- The notes were sold to investors through an underwriting agreement.
Capital raise
8 May 2024 4:40 PM
Debt Issuance Announcement
- CVS Health is raising approximately $4.95 billion through the issuance of senior notes.
- The funds will be used for general corporate purposes as detailed in the prospectus.
Worse than expected
1 May 2024 6:40 AM
Quarterly Report
- The company's net income and operating income decreased significantly, indicating worse than expected results.
- The medical benefit ratio (MBR) in the Health Care Benefits segment increased substantially, reflecting higher healthcare costs than anticipated.
- The Health Services segment experienced a revenue decrease, which was worse than expected.
Worse than expected
1 May 2024 6:32 AM
Quarterly Report
- The company's earnings per share and cash flow guidance were significantly lowered due to higher than expected medical costs.
- The Health Care Benefits segment experienced a substantial decrease in adjusted operating income, indicating worse than expected performance.
- The medical benefit ratio increased significantly, reflecting higher healthcare costs than anticipated.
Worse than expected
7 February 2024 6:52 AM
Annual Results
- The company's Medicare Advantage plans did not qualify for full level quality bonuses in 2024, which could reduce profit margin.
Worse than expected
7 February 2024 6:33 AM
Quarterly Report
- The company revised its full-year 2024 earnings and cash flow guidance downwards, indicating worse than expected future performance.
- The Health Care Benefits segment experienced a decrease in adjusted operating income due to increased utilization in Medicare Advantage, which was worse than expected.
- The Pharmacy & Consumer Wellness segment saw a decrease in adjusted operating income for the full year due to continued pharmacy reimbursement pressure and decreased COVID-19 related services, which was worse than expected.
Disclaimer: This summary was generated by artificial intelligence and its accuracy is not guaranteed. The information provided here is for general informational purposes only and does not constitute financial advice, recommendation, or endorsement of any kind. It may contain errors or omissions. You should not rely on this information to make financial decisions. Always seek the advice of a qualified financial professional before making any investment or financial decisions. Use of this information is at your own risk.