Sunday, December 22, 2024

CVS Health cuts its 2024 forecast a third time, dragged down by insurance struggles

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CVS Health chopped its 2024 forecast for a third time this year and changed the leadership of its health insurance business where it continues to struggle with rising costs.

CEO Karen Lynch will lead the insurance segment, replacing Executive Vice President Brian Kane, who is leaving the company about a year after arriving, the health care giant said Wednesday.

Rising claims from the company’s Medicare Advantage coverage have hurt CVS Health for much of this year and contributed to repeated trimmings of its outlook for 2024. Medicare Advantage plans are privately run versions of the federal government’s coverage program mainly for people age 65 and older.

CVS Health also said Wednesday that it has been hurt by a drop in quality ratings for those plans and pressure from Medicaid coverage it manages in several states.

The company’s adjusted operating income from its health benefits business plunged 39% in the quarter to $938 million, helping to drag down overall profit.

Adjusted operating income, which excludes things like capital gains, also dropped 12% for CVS Health’s pharmacy business, which runs thousands of drugstores nationally. The company filled more prescriptions in the second quarter, but it has been dealing with tighter reimbursement for those drugs.

Outside the pharmacy, store sales slumped partially because customers have been buying fewer COVID-19 test kits, CVS Health said.

Lynch told analysts on Wednesday that the company is planning a multiyear, $2 billion cost-cutting program. She said it will involve more use of artificial intelligence and automation as well as “continuing to rationalize our business portfolio.”

CVS Health is wrapping up in 2024 a three-year plan to close 900 stores. Lynch said Wednesday the company has closed 851 so far.

CVS Health Corp. still runs one of the nation’s largest drugstore chains and a huge pharmacy benefit management business that operates prescription drug coverage. It also covers nearly 27 million people through its Aetna insurance arm.

Overall, the company’s profit dropped more than 7% to $1.77 billion in the quarter. Adjusted earnings totaled $1.83 per share on $91.2 billion in revenue.

Analysts projected earnings of $1.73 per share on $91.41 billion in revenue, according to FactSet.

CVS Health now expects adjusted per-share earnings for the year to be between $6.40 and $6.65. That’s well below the Wall Street consensus of $6.96 per share.

The company’s new forecast is down from a projection for at least $7 that it made in May after previously reducing the forecast in February.

CVS Health initially said last December that 2024 adjusted earnings should total at least $8.50 per share.

Shares of the Woonsocket, Rhode Island, company slid 64 cents to $57.70 Wednesday morning while broader indexes climbed more than 1%.

CVS Health stock has already shed a quarter of its value this year as the Standard & Poor’s 500 index has climbed about 10%.

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