CVS Health Corporation (CVS) disclosed fourth-quarter revenue and adjusted earnings that surpassed expectations, driven by strength in its health services business. However, concerns about towering medical costs prompted the company to slash its full-year profit outlook for 2024.
Despite the steady financial performance, CVS tightened its adjusted earnings forecast for 2024 to at least $8.30 per share, down from a previous guidance of at least $8.50 per share. This adjustment takes place amid a backdrop of soaring medical expenses that have been constraining the broader insurance industry, including health insurance giant Aetna, owned by CVS.
Tom Cowhey, CFO of CVS Health, credited the revised guidance to the company's review on an earnings call Wednesday, "Our guidance prudently assumes that the elevated medical cost trends we observed in the fourth quarter will carry forward into 2024."
The rise in medical costs has been particularly evidently as older adults, who postponed procedures during the pandemic and are now returning for treatments such as joint and hip replacements.
Despite the downward revision in profit outlook, CVS released splendid financial results for the fourth quarter, with adjusted earnings per share coming in at $2.12, surpassing analysts' projections of $1.99 per share. Additionally, the company declared revenue of $93.81 billion, exhibiting a nearly 12% increase from the same period a year ago and exceeding analysts' estimates of $90.41 billion.
The magnificent revenue growth was primarily attributed to robust performance in CVS's health services segment, which experienced a 12.3% increase in revenue compared to the fourth quarter of 2022. This division includes CVS Caremark, which negotiates drug discounts with manufacturers on behalf of insurance plans and various health-care services delivered in medical clinics, through telehealth, and at home.
Remarkably, outstanding performance of CVS's health services segment was driven by growth in specialty pharmacy services, brand inflation and contributions from recent acquisitions. However, same-store sales in the front of the store decreased by 3.1%, offsetting some of the gains in the pharmacy division.
Despite these strong results, CVS emphasized challenges in its health insurance segment, where the medical benefit ratio increased to 88.5%, showcasing higher-than-expected medical expenses relative to premiums collected. Looking ahead, CVS is focused on its transition from a major drugstore chain to a leading health-care company. The company has made substantial investments in expanding its health services offerings, including the recent acquisitions of Signify Health and Oak Street Health.
Despite the headwinds caused by increased medical costs, CVS remains optimistic about its capability to provide affordable healthcare and ensure transparency throughout the health care system.
"With a focus on delivering care and value, we had a strong fourth quarter and full year in 2023 as we build a world of health around every consumer," said CEO Karen Lynch. "We will continue to drive affordable access to care when, where and how people want, while we improve transparency throughout the health care system."
