CVS Health reported stronger-than-expected fourth-quarter earnings Wednesday, with revenue surpassing Wall Street estimates despite ongoing challenges in its insurance unit. Shares of the retail pharmacy giant surged 10% in premarket trading as investors reacted positively to the earnings beat and the company's reaffirmed full-year profit outlook.
The company posted revenue of $97.71 billion, exceeding analysts' expectations of $97.19 billion, according to data from LSEG. Adjusted earnings per share came in at $1.19, surpassing the 93 cents per share forecasted by analysts. However, net income declined to $1.64 billion, or $1.30 per share, compared to $2.05 billion, or $1.58 per share, a year earlier.
The latest earnings report marked the first full quarter under CEO David Joyner, a longtime CVS executive who took over in October following Karen Lynch's departure. Joyner has launched a turnaround plan focused on $2 billion in cost reductions over the coming years, as the company contends with rising healthcare costs, declining pharmacy reimbursement rates, and softer consumer spending.
Challenges in the Insurance Business
Despite strong top-line growth, CVS' Aetna insurance unit continued to struggle with rising medical costs. The business generated $32.96 billion in revenue, up 23% from the prior year, but reported an operating loss of $439 million, compared with an operating profit of $676 million in the year-ago period.
A key driver of the loss was a spike in medical expenses as Medicare Advantage enrollees resumed procedures that were delayed during the pandemic. Investors have grown increasingly concerned about rising costs in Medicare Advantage, a lucrative segment that now accounts for more than half of all Medicare beneficiaries.
CVS' medical benefit ratio-which measures total medical expenses paid relative to premiums collected-rose to 94.8%, compared with 88.5% a year earlier. However, the figure came in better than the 95.9% analysts had expected, according to StreetAccount estimates.
Pharmacy and Health Services Performance
CVS' pharmacy and consumer wellness division posted $33.51 billion in sales, an increase of 7.5% from the previous year. The company attributed the growth to higher prescription volumes across its more than 9,000 retail pharmacies. Analysts had anticipated sales of $33.03 billion for the segment.
The company's health services unit, which includes Caremark, one of the nation's largest pharmacy benefit managers (PBMs), generated $47.02 billion in revenue, slightly below the prior year's $49.15 billion. The segment processed 499.4 million pharmacy claims, a drop from 600.8 million in the previous year, following the loss of a major client. Tyson Foods previously disclosed that it dropped CVS as its PBM for 140,000 employees, but it is unclear whether other large companies followed suit.
Looking Ahead: 2025 Profit Guidance
CVS reaffirmed its full-year 2025 adjusted earnings forecast of $5.75 to $6.00 per share, aligning with analysts' expectations. However, the company did not provide a revenue outlook, leaving some uncertainty about growth prospects amid ongoing challenges in the insurance business.
"Our integrated model allows us to uniquely deliver a simpler, connected experience that saves time, saves money, and improves health," Joyner said in a statement.
The company has been under pressure after a 40% stock decline in 2024, weighed down by three consecutive earnings misses. In November, CVS announced plans to cut costs and revamp its leadership team in an effort to stabilize operations.
