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CVS Pharmacy Profits Surpass Wall Street Expectations
November 2, 2023
In a turn of events, CVS Health Corporation has defied expectations and surpassed Wall Street’s predictions regarding its recent quarterly profits. Despite the favorable earnings report, CVS shares experienced a slight drop, falling over 1% in pre-market trading on Wednesday.
A robust performance in CVS’ retail pharmacy and pharmacy benefit management sectors compensated for unexpectedly high medical costs in its insurance division.
CVS Health controls one of the largest pharmacy benefit managers (PBMs) in the U.S., CVS Caremark. This PBM acts as an intermediary in drug price negotiations between insurers and drug manufacturers. The health services sector, inclusive of the PBM, experienced an 8% revenue surge, recording $46.89 billion in the third quarter. This was primarily driven by growth in the specialty pharmacy sector, which provides medications for complex conditions such as arthritis and cancer. Rising prices of branded drugs also contributed to the increase.
Amid rising healthcare costs, PBMs like CVS Caremark face increasing scrutiny, with proposed legislation intending to make their business transactions, including transactional fees, publicly accessible. The pharmacy and consumer wellness section of CVS saw a 6% growth in revenue to $28.87 billion, fueled by increased drug prices and prescription volume.
CVS Pharmacy in the Midst of Pharmageddon
The earnings announcement coincided with the culmination of a three-day employee walkout, coined “Pharmageddon,” at several CVS and Walgreens pharmacies. The two leading U.S. drugstore chains are under fire for alleged gross understaffing, resulting in overworked employees.
In total, CVS Health generated $61.3 billion in product revenue, surpassing the analyst average estimate of $60.74 billion, based on LSEG data. CVS’ health insurance division collected $24.66 billion in premiums, exceeding the average estimate of $24.46 billion, though there was a surge in medical costs due to increased service utilization in government-supported plans for older adults.
However, challenges remain as CVS shares have taken a recent hit.
The insurance division’s medical benefit ratio (claims paid versus premiums collected) was 85.7% in the third quarter, slightly higher than analysts’ estimates of 85.1%. On an adjusted basis, CVS reported a profit of $2.21 per share, outpacing the average estimate of $2.13.
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