Healthcare giant CVS Health (CVS 0.10%) unveiled first-quarter earnings on Wednesday, May 1, that fell well short of analysts' forecasts. It also disappointed investors with downward full-year guidance revisions. With an adjusted EPS of $1.31 that missed expectations of $1.69 and a slight revenue growth, the quarter reflected a challenging period for the company.
Several data points offered up in the company's report point to a complex quarter for CVS amid evolving market dynamics.
| Metric | Q1 2024 | Analyst Estimate | Q1 2023 | Change (YOY) |
|---|---|---|---|---|
| Total revenue | $88.4 billion | $89.3 billion | $85.3 billion | 3.7% |
| Net income | $1.12 billion | N/A | $2.14 billion | -48% |
| Adjusted operating income | $2.96 billion | N/A | $4.37 billion | -32% |
| Adjusted EPS | $1.31 | $1.69 | $2.20 | -41% |
| GAAP EPS guidance for 2024 | At least $5.64 | - | At least $7.06 | - |
Analyst source: FactSet. YOY = Year over year. EPS = Earnings per share. GAAP = Generally accepted accounting principles.
About CVS Health
At its core, CVS Health operates as a healthcare innovator, providing a wide array of services through its extensive pharmacy and healthcare businesses. This integration, including over 9,000 retail locations and a robust pharmacy benefits management (PBM) service, positions CVS Health uniquely in the healthcare industry.
Recently, the company has been concentrating on expanding its reach in Medicare and Medicaid services, enhancing its PBM offerings, and evolving its healthcare model to incorporate more technology-driven solutions. These focus areas aim to cement CVS Health's standing as a comprehensive healthcare provider in an ever-changing market.
Quarter highlights (and lowlights)
On a positive note, CVS Health did see modest revenue growth this quarter, driven in part by its pharmacy business and its insurance segments. However, the performance disparities among its business segments underline the operational hurdles the company is navigating. Key among these was the adjusted operating income dip in the Health Care Benefits segment, highlighting increased operational costs even as revenues grew. This, combined with the downward revision in full-year EPS guidance, spotlights ongoing challenges and a cautious outlook.
CVS’ health insurance segment generated $32.24 billion in revenue during the quarter, up 24% year over year. The division includes Aetna, Medicare Advantage, and Medicaid, as well as dental and vision. Sales for the segment exceeded multiple analyst estimates for the segment. However, the insurance segment also reported adjusted operating income of just $732 million. Revenue is up, but so are the costs. CVS' medical benefit ratio -- the percentage of medical premium revenue paid out as benefits -- jumped from 84.6% to 90.4%.
Despite these headwinds, CVS Health remains steadfast in its strategic direction, emphasizing its integrated healthcare model and technological advancements to enhance service delivery and patient outcomes. The company's response to current challenges, including adjusting its Medicare Advantage offerings, showcases resilience and adaptability in its long-term strategy.
Looking ahead
Looking forward, CVS Health's management lowered its financial expectations for 2024, demonstrating a pragmatic approach to current market and operational challenges. GAAP diluted EPS guidance for the full year now suggests at least $5.64 (down from at least $7.06).
Cash flow from operations guidance fell to at least $10.5 billion (down from at least $12 billion).
The market responded poorly to the revised guidance and the stock price fell by double-digit percentages on Wednesday.
Investors are encouraged to monitor the company's progress in addressing its Medicare Advantage segment's challenges, further integration of recent acquisitions, and the deployment of technology in improving healthcare delivery. The adaptations and strategic initiatives CVS Health undertakes in the coming months will be critical in navigating the dynamic healthcare landscape.
