Fluctuating Course: CVS Health Suffered from Disappointing Quarterly Results and Cautious Annual Forecast

CVS Health's shares showed volatility in pre-market trading on Wednesday after the company reported mixed results for the second quarter and lowered its annual forecast. Total sales for the second quarter amounted to $91.23 billion, missing the consensus estimate of $91.51 billion. Overall, revenues increased by 2.6%, primarily due to growth in the Health Services and Pharmacy & Consumer Health segments. Meanwhile, the Health Services segment experienced a decline. Adjusted earnings per share (EPS) decreased from $2.21 in the previous year to $1.83, still exceeding the consensus expectation of $1.73. The decline in the Health Services segment, driven by ongoing pressure on utilization and the negative impact of Medicare Advantage star ratings for the 2024 payment year, was identified as the main reason for the lower earnings. Adjusted operating income also fell by 16.4% to $3.74 billion. Revenues in the Health Services segment rose by 21.4% to $32.48 billion, while the medical benefit ratio increased from 86.2% in the previous year to 89.6%. Membership in the medical segment reached 27 million. Conversely, revenues in the Health Services segment declined by 8.8% to $42.17 billion, with processed pharmacy claims decreasing by 18.3%. Due to the current performance and outlook for the Health Services segment, the company has implemented immediate leadership changes. Brian Kane will be leaving the company, and CEO Karen Lynch will take direct leadership of the Health Services segment. Together with Tom Cowhey, CFO of CVS Health, Lynch will oversee the day-to-day operations of this segment. Regarding the forecast, CVS Health has lowered its adjusted EPS forecast from at least $7.00 to $6.40 to $6.65, falling below the consensus of $6.98. Similarly, the full-year 2024 operating cash flow forecast has been adjusted from at least $10.5 billion to approximately $9.0 billion. This adjustment reflects ongoing pressure in the Health Services segment. For 2024, the company expects revenue of $369.0 to $372.0 billion, compared to the consensus of $368.876 billion and a previous forecast of at least $369 billion. The company projects adjusted operating income of $13.75 to $14.15 billion, compared to the previous forecast of at least $14.75 billion. The medical benefit ratio is now estimated at 90.6% to 90.8%, compared to the previously expected ~89.8%. At last check, CVS's stock price was at $59.05 in pre-market trading, an increase of 1.22%. Other mentioned companies: - Rite Aid - Walgreens