CVS Health has reported disappointing earnings for the third quarter despite achieving robust sales figures. Under the leadership of newly appointed CEO David Joyner, the company is undergoing significant changes following a challenging year that has resulted in a substantial drop in its stock price.
At the market’s open, CVS saw a share price increase of 13%, coinciding with a broader market surge sparked by the news of Donald Trump’s potential return to the White House. Joyner has brought in Steve Nelson from UnitedHealth to take charge of Aetna, which has been struggling. This shift takes effect immediately. Meanwhile, Prem Shah will oversee CVS Caremark, CVS Pharmacy, and the Health Care Delivery sectors, having joined the company in 2013.
As one of the largest drugstore chains in the U.S., CVS Health operates a vast pharmacy benefits management service, which provides prescription coverage for various clients, including employers and insurers. The company also has nearly 27 million individuals covered through Aetna, its insurance segment.
The Aetna division has significantly hindered overall performance, prompting optimism towards Nelson, whose extensive experience in the industry could reinvigorate the troubled entity. John Boylan from Edward Jones remarked, “The new leadership announcement gives us hope that CVS is moving quickly to improve its business execution.” He cautioned, however, that any substantial operational improvements could take time and stressed the need for close observation of management’s forthcoming strategies and their potential impact on sustainable growth in sales and earnings.
CVS Health reported earnings of $87 million for the September quarter, a staggering 96% decrease compared to the previous year. The results were adversely affected by considerable restructuring costs. Adjusted earnings per share reached $1.09, falling short of the analysts’ average estimate of $1.44. Nonetheless, revenue increased by 6.3% to $95.43 billion, surpassing analyst projections of $92.72 billion per a FactSet survey.
On October 18, alongside the announcement of CEO Karen Lynch’s resignation, CVS indicated that adjusted earnings for the quarter would range between $1.05 and $1.10 per share, greatly below the anticipated $1.69. Over the course of the year, CVS Health has revised its forecasts downward on three occasions. Although the company is implementing cost-cutting measures, it continues to face challenges related to rising claims from its Medicare Advantage plans, which are privately managed versions of Medicare primarily for individuals aged 65 and older.
Additionally, CVS Health has experienced setbacks due to a decline in quality ratings for these plans and challenges stemming from the management of Medicaid programs in various states. This performance has drawn criticism from investors like Glenview Capital Management, which described the company’s performance in the Medicare Advantage sector as indicative of widespread operational shortcomings. Glenview has conveyed that CVS’s present challenges are manageable with effective leadership and adequate oversight.
On the retail side of the business, CVS Health is nearing the conclusion of a three-year strategy to close approximately 900 locations, with plans announced last month to close an additional 271 stores. The company also faces ongoing labor disputes; thousands of employees in Southern California temporarily struck in October over demands for better wages and staffing levels, as well as more accessible healthcare. Furthermore, CVS announced its intention to reduce its workforce by around 2,900 positions – less than 1% of its total personnel.
Lastly, CVS Health disclosed in October that its third-quarter financial results would reflect a charge of about $1.2 billion, linked to its cost-cutting initiatives and the ongoing store closures. Since the beginning of the year, shares of Woonsocket, Rhode Island-based CVS Health Corp. have decreased by approximately 28%, contrasting sharply with the nearly 20% increase in the Standard & Poor’s 500 index.
