CVS' earnings beat Wall Steet's estimates

WOONSOCKET, R.I. — CVS Health topped Wall Street's projections for fourth quarter sales and profits.

The company posted adjusted earnings per share of $1.19 per share, beating analysts' forecast of 93 cents.

Revenue for the quarter rose 4.2% from a year earlier to $97.71 billion, exceeding the expected $97.19 billion.

The adjusted EPS were down from $2.12 in the prior year, primarily due to a decline in the Health Care Benefits segment's operating results, which reflect continued utilization pressure and the unfavorable impact of the company's Medicare Advantage star ratings for the 2024 payment year.

CVS reported net income of $1.64 billion, or $1.30 per share, for the quarter ended December 31, down from $2.05 billion, or $1.58 per share, in the year-ago period.

The company said it expected 2025 earnings to range between $5.75 and $6 per share, which aligned with Wall Street’s expectations.

"Our integrated model allows us to uniquely deliver a simpler, connected experience that saves time, saves money, and improves health," said president and CEO Dave Joyner. "We have continued to see growth in key areas of our business, including the Pharmacy and Consumer Wellness segment, while we address the industrywide challenges that have impacted our Health Care Benefits segment. Through the continued dedication of our colleagues, we will be positioned for strong performance in 2025 as we deliver simply better care for consumers while improving outcomes and reducing costs."

For the three months and year ended December 31, compared to the prior year:

Total revenues increased 4.2% in both the quarter and year compared to the prior year driven by growth in the Health Care Benefits and Pharmacy & Consumer Wellness segments, partially offset by a decline in the Health Services segment.
Operating income decreased 29.8% in the quarter compared to a year ago, primarily due to a decrease in adjusted operating income, partially offset by an increase in net realized capital gains and lower acquisition-related integration costs compared to the prior year.
Operating income decreased 38.0% for the year compared to the prior year primarily due to a decrease in adjusted operating income and an increase in restructuring charges compared to the prior year. These decreases in operating income were partially offset by an increase in net realized capital gains, the absence of a $349 million loss on assets held for sale related to the write-down of the Company's Omnicare long-term care business recorded in the prior year, as well as lower acquisition-related transaction and integration costs.
Adjusted operating income decreased 35.5% and 31.7% in the quarter and year.
Interest expense increased $68 million, or 9.9%, and $300 million, or 11.3%, respectively, due to higher debt in the three months and year, primarily as a result of long-term debt issuances in 2024.
The effective income tax rate in the fourth quarter decreased to 23.7% compared to 24.3% in the prior year, primarily due to the basis differences on the disposition of certain investments and utilization of tax credits partially offset by the mix of pre-tax income compared to the year-ago quarter.
The effective income tax rate for the full year increased to 25.4% compared to 25.1% in the prior year, primarily due to the mix of pre-tax income and certain non-deductible expenses, partially offset by basis differences on the disposition of certain investments and utilization of tax credits in 2024 compared to the prior year.

Health Care Benefits segment

Total revenues increased 23.3% and 23.7% for the three months and year ended December 31, 2024, respectively, compared to the prior year, primarily driven by growth in the Medicare and individual exchange product lines.
During the three months ended December 31, 2024, the Health Care Benefits segment had an adjusted operating loss of $439 million compared to adjusted operating income of $676 million in the prior year. The change was primarily driven by increased utilization, the unfavorable impact of the Company's Medicare Advantage star ratings for the 2024 payment year and the impact of higher acuity in Medicaid following the resumption of redeterminations. These decreases were partially offset by the acceleration of anticipated losses related to the fourth quarter of 2024 recorded in the third quarter of 2024 in connection with a premium deficiency reserve, higher favorable prior-period development compared to the prior year, as well as an increase in net investment income.
During the year ended December 31, 2024, the Health Care Benefits segment had an adjusted operating income of $307 million compared to adjusted operating income of $5,577 million in the prior year. The change was primarily driven by increased utilization, the unfavorable impact of the Company's Medicare Advantage star ratings for the 2024 payment year and higher acuity in Medicaid. These decreases were partially offset by an increase in net investment income and improved fixed cost leverage across the business due to membership growth.
The MBR increased from 88.5% to 94.8% in the three months ended December 31, 2024 compared to the prior year driven by increased utilization, the unfavorable impact of the previously disclosed decline in the Company's Medicare Advantage star ratings for the 2024 payment year and the impact of higher acuity in Medicaid. These increases were partially offset by the impact of the premium deficiency reserve recorded in the third quarter of 2024 described above and higher favorable prior-period development.
The MBR increased from 86.2% to 92.5% in the year ended December 31, 2024 compared to the prior year primarily driven by increased utilization, the unfavorable impact of the Company's Medicare Advantage star ratings for the 2024 payment year and higher acuity in Medicaid.
Medical membership as of December 31, 2024 of 27.1 million remained relatively consistent compared with September 30, 2024. Medical membership as of December 31, 2024 of 27.1 million increased 1.4 million members compared with December 31, 2023, reflecting increases in the Medicare and individual exchange product lines.
Prior years' health care costs payable estimates developed favorably by $885 million during the year ended December 31, 2024. This development is reported on a basis consistent with the prior years' development reported in the health care costs payable table in the Company's annual audited financial statements and does not directly correspond to an increase in 2024 operating results.
Days claims payable were 44.0 days as of December 31, 2024, a decrease of 0.6 days compared to September 30, 2024, primarily reflective of seasonality.

Health Services segment

Total revenues decreased 4.3% and 7.1% for the three months and year ended December 31, 2024, respectively, compared to the prior year primarily driven by the previously announced loss of a large client and continued pharmacy client price improvements. These decreases were partially offset by pharmacy drug mix, increased contributions from the Company's health care delivery assets and growth in specialty pharmacy.
Adjusted operating income decreased 5.3% for the three months ended December 31, 2024 compared to the prior year primarily driven by continued pharmacy client price improvements, the previously announced loss of a large client and the impact of higher health care costs in the Company's health care delivery assets, largely offset by improved purchasing economics and increased volume at Signify Health.
Adjusted operating income decreased 0.9% for the year ended December 31, 2024 compared to the prior year primarily driven by continued pharmacy client price improvements and the previously announced loss of a large client, largely offset by improved purchasing economics.
Pharmacy claims processed decreased 16.9% and 18.2% on a 30-day equivalent basis for the three months and year ended December 31, 2024, respectively, compared to the prior year reflecting the previously announced loss of a large client.

Pharmacy & Consumer Wellness segment

Total revenues increased 7.5% and 6.6% for the three months and year ended December 31, 2024, respectively, compared to the prior year primarily driven by pharmacy drug mix and increased prescription volume. These increases were partially offset by continued pharmacy reimbursement pressure, the impact of recent generic introductions and decreased front store volume, including the impact of a decrease in store count. Total revenues for the year ended December 31, 2024 also reflect the impact of increased contributions from vaccinations and lower contributions from COVID-19 over-the-counter ("OTC") test kits since the expiration of the public health emergency in May 2023.
Adjusted operating income decreased 13.3% for the three months ended December 31, 2024 compared to the prior year primarily driven by continued pharmacy reimbursement pressure and decreased front store volume, partially offset by improved drug purchasing.
Adjusted operating income decreased 3.2% for year ended December 31, 2024 compared to the prior year primarily driven by continued pharmacy reimbursement pressure and decreased front store volume, including lower contributions from COVID-19 OTC test kits, largely offset by increased prescription volume, including increased contributions from vaccinations, as well as improved drug purchasing.
Prescriptions filled increased 3.3% and 4.0% on a 30-day equivalent basis for the three months and year ended December 31, 2024, respectively, compared to the prior year primarily driven by increased utilization.
Same store prescription volume increased 5.9% and 6.8% on a 30-day equivalent basis for the three months and year ended December 31, 2024, respectively, compared to the prior year.