CVS Health (CVS) earnings Q3 2024

CVS Health on Wednesday reported mixed third-quarter results as higher medical costs pressured the bottom line. The earnings report is CEO David Joyner’s first at the helm of the troubled retail chain.

The company expects elevated medical costs to continue to pressure its results this year, “and as a result, we are not providing a formal outlook at this time,” a spokesperson told CNBC. CVS will provide comments on what it expects “direction-wise” during its earnings call, the spokesman said.

“Establishing credibility and earning the trust of our investors is one of my top priorities as the new leader of CVS Health,” Joyner said in a statement. “To achieve that, any guidance we provide should be achievable with clear opportunities for outperformance. This is a core principle for me.”

Wall Street’s confidence in CVS has weakened this year after three straight quarters of full-year guidance cuts, prompting pressure from an activist investor to turn the business around.

The company’s shares are down nearly 27% for the year as higher medical costs at its health insurance unit, Aetna, eat into its profits, reflecting seniors returning to hospitals to undergo procedures they had delayed during the Covid-19 pandemic.

“While the entire industry has seen increased utilization coming out of the pandemic, we have been more acutely affected than others,” Joyner said. “Our immediate priority remains to ensure stability of the company.”

Also Wednesday, CVS named a new president of Aetna, effective immediately: Steve Nelson, the former CEO of health care giant UnitedHealthcare, a division of UnitedHealth Group. Joyner and Nelson are tasked with convincing investors that CVS can get back on track and better manage higher-than-expected costs.

Meanwhile, longtime company executive Prem Shah will take on a new, expanded role overseeing the company’s retail pharmacies, pharmacy benefits and health services, CVS said.

Shares of CVS rose more than 10% in premarket trading Wednesday.

Here’s what CVS reported for the third quarter compared to what Wall Street expected, based on a survey of analysts from LSEG:

• Earnings per share: $1.09 adjusted vs. $1.51 expected
• Income: $95.43 billion vs. $92.75 billion expected

On Oct. 18, when CVS announced that Joyner had succeeded former CEO Karen Lynch, the company also said it had carried out a strategic review which included layoffs, write-downs and the closing of 271 more retail stores. Those actions were in addition to a plan announced in August to cut $2 billion in spending over the next several years, which includes cutting nearly 3,000 jobs, or less than 1% of its workforce.

CVS reported sales of $95.43 billion for the third quarter, up 6.3% from the same period a year ago, due to growth in its pharmacy business and insurance unit.

The company had net income of $71 million, or 7 cents per share, for the third quarter. That compares with net income of $2.27 billion, or $1.75 per share, for the same period last year.

Excluding certain items, such as amortization of intangible assets, restructuring costs and capital losses, adjusted earnings per share were share $1.09 for the quarter. This is in line with the estimate the company provided last month.

Adjusted and unadjusted earnings also included a charge of 63 cents per share. share, or $1.1 billion, from so-called premium loss reserves in its insurance business related to expected losses in the fourth quarter of 2024.

It refers to a liability that an insurance company may have to cover if future premiums are not enough to pay for expected damages and expenses. Premium shortfall reserves “are actually an acceleration of future losses that move the earnings cadence between” the third quarter and the fourth quarter, a spokesman told CNBC.

CVS expects these premium deficiency reserves to “be materially released” during the fourth quarter, which will benefit results in that period. The spokesman said CVS does not expect to set aside a premium loss reserve for 2025.

CVS also recorded restructuring charges of 93 cents per share, or $1.17 billion, in the third quarter. That includes $607 million for additional stores it plans to close in 2025 and $293 million related to layoffs.