CVS Reports Strong Third-Quarter Earnings and Revenue, Bolstered by Health Services Business
CVS, the major drugstore chain with ambitions to transform into a large health-care company, has reported third-quarter adjusted earnings and revenue that surpassed Wall Street’s expectations. The impressive results were driven in part by robust revenue from CVS’s health services business.
For the quarter, CVS reported sales of $89.76 billion, marking an impressive 11% increase compared to the same period in the previous year. The company also saw a significant turnaround in net income, reporting $2.27 billion for the third quarter, in contrast to a net loss of $3.40 billion during the same period last year. Adjusted earnings per share came in at $2.21, beating analysts’ estimates.
Notably, CVS has lowered its full-year unadjusted earnings forecast, now ranging from $6.37 to $6.61, down from the previous range of $6.53 to $6.75. However, the company maintained its guidance for adjusted full-year earnings per share, projecting a range of $8.50 to $8.70.
These favorable financial results come at a time when CVS is making significant strategic moves to cement its position in the health-care industry. The company recently initiated a sweeping cost-cutting program aimed at transforming itself from a drugstore chain into a large health-care entity. Additionally, CVS made substantial acquisitions, such as the nearly $8 billion purchase of health-care provider Signify Health and the $10.6 billion deal to acquire Oak Street Health, a leading operator of primary care clinics for seniors.
Despite the positive financial news, CVS has faced challenges internally, with a recent nationwide walkout by pharmacy staff from CVS, Walgreens, and Rite Aid. The walkout aimed to draw attention to harsh working conditions that employees claim jeopardize both their well-being and patient safety. CVS has responded by engaging with employees to address their concerns directly.
CVS’s health services segment performed exceptionally well, generating $46.89 billion in revenue for the quarter, an 8% increase compared to the same quarter last year. This includes revenue from CVS Caremark, the division responsible for negotiating drug discounts with manufacturers on behalf of insurance plans. The health services segment also encompasses various health-care services provided by CVS, such as medical clinics, telehealth consultations, and at-home care. Specialty pharmacy services, which assist patients with complex disorders, contributed significantly to the segment’s growth, as did the recent acquisitions of Oak Street Health and Signify Health.
On the other hand, CVS’s pharmacy and consumer wellness division reported sales of $28.87 billion for the quarter, up 6% from the previous year. This division primarily focuses on dispensing prescriptions in CVS’s retail pharmacies and providing additional pharmacy services like diagnostic testing and vaccinations. The segment saw same-store sales growth of 8.8% compared to the same period the previous year. However, front-of-the-store sales declined by 2.2%, mainly due to decreased purchases of over-the-counter Covid tests.
The health insurance segment of CVS, operated by its subsidiary Aetna, generated revenue of $26.30 billion in the third quarter. This represented a significant 17% increase from the second quarter of 2022. Moreover, CVS’s health insurance business experienced improved profitability, with the medical benefit ratio increasing to 85.7% from 83.4% year-over-year. A higher ratio suggests that CVS collected more in premiums than it paid out in benefits.
CVS’s latest financial achievements are expected to help the company overcome its falling stock price, which has declined nearly 26% for the year. Despite the drop, CVS maintains a market value of approximately $88 billion.
Investors will have the opportunity to gain further insights into CVS’s financial performance during an earnings call scheduled for 8 a.m. ET.