CVS Health Corp (CVS) Q4 2024 Earnings Call Highlights: Strong Revenue Growth Amidst ...

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Thu, Feb 13, 2025, 12:08 AM 4 min read

Adjusted Earnings Per Share (EPS): $1.19 for Q4 2024.
Adjusted Operating Income: $2.7 billion for Q4 2024.
Revenue: Nearly $98 billion for Q4 2024, a 4% increase year-over-year.
Full Year Cash Flow from Operations: Approximately $9.1 billion.
Health Care Benefits Revenue: Approximately $33 billion, a 23% increase year-over-year.
Medical Membership: Approximately 27.1 million, roughly flat sequentially.
Medical Benefit Ratio: 94.8%, increased by 630 basis points year-over-year.
Health Services Revenue: Approximately $47 billion, a 4% decrease year-over-year.
Pharmacy & Consumer Wellness Revenue: Over $33 billion, a 7% increase year-over-year.
Same-Store Pharmacy Sales: Increased 13% year-over-year.
Same-Store Prescription Volumes: Increased nearly 6% year-over-year.
Store Closure Plan: Completed three-year plan, maintaining over 27% retail pharmacy script share.
2025 Adjusted EPS Guidance: $5.75 to $6.00.
2025 Revenue Guidance for Health Services: Approximately $185 billion.
2025 Revenue Guidance for Pharmacy & Consumer Wellness: Approximately $134 billion.
2025 Cash Flow from Operations Guidance: Approximately $6.5 billion.

Warning! GuruFocus has detected 4 Warning Signs with CVS.

Release Date: February 12, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

CVS Health Corp (NYSE:CVS) reported fourth-quarter adjusted earnings per share of $1.19 and adjusted operating income of $2.7 billion, indicating strong financial performance.
The company provided initial full-year 2025 guidance for adjusted EPS in the range of $5.75 to $6.00, reflecting confidence in future growth.
CVS Health Corp (NYSE:CVS) has made significant progress in stabilizing its Aetna business, particularly in Medicare Advantage, which is expected to improve margins.
The company has successfully implemented innovative pricing models like Caremark's TrueCost and CVS Pharmacy's CostVantage, enhancing transparency and affordability.
CVS Health Corp (NYSE:CVS) achieved a record volume year for Signify, completing over 3 million in-home health evaluations, contributing to revenue growth.

Negative Points

The Health Care Benefits segment experienced an adjusted operating loss of $439 million, driven by a higher medical benefit ratio and other factors.
CVS Health Corp (NYSE:CVS) anticipates a decline in aggregate membership by over 1 million members, primarily in Individual Exchange and Medicare products.
The company faces challenges with elevated medical cost trends, particularly in its Medicare Advantage and Individual Exchange businesses.
CVS Health Corp (NYSE:CVS) expects adjusted operating income for the Pharmacy & Consumer Wellness segment to decline approximately 5% in 2025.
The company's leverage ratio remains above its long-term target, indicating ongoing financial pressure despite efforts to manage debt.

Q & A Highlights

Q: David, what are some of the things you think you can bring to CVS as the new CEO, and can you elaborate on the guidance for 2025? A: David Joyner, President and CEO, emphasized focusing on stabilizing Aetna's operations and financial discipline. He highlighted the transformation in pharmacy pricing models and the success of the biosimilar launch with Cordavis. Joyner expressed confidence in the leadership team and the strategic priorities set for CVS. Regarding guidance, he stressed the importance of establishing trust and credibility, with opportunities for outperformance in 2025.

Q: Can you provide more detail on the Medicare Advantage trend and assumptions for 2025? A: Thomas Cowhey, CFO, noted that medical trends remained elevated but less severe than anticipated. He mentioned modest improvements in Medicare, particularly in group Medicare and dual lines, and some relief on inpatient trends. For 2025, the outlook remains cautious, with trends from 2024 incorporated into the baseline. The focus is on understanding membership mix changes and their impact on performance.

Q: What is the status of Medicare Advantage margins, and what is the expected progression over the next few years? A: Cowhey stated that Medicare Advantage margins ended 2024 in the negative 4.5% to 5% range, with improvements expected in 2025, though not reaching breakeven. Steve Nelson, President of Aetna, highlighted progress in forecasting, pricing discipline, and member experience, expressing confidence in returning to target margins over a multi-year period.

Q: Can you elaborate on the actions taken in the individual ACA business and their expected impact on margins? A: Cowhey explained that the ACA business is expected to shrink significantly in 2025 due to pricing and product mix changes. While improvements are anticipated, the business is not expected to reach breakeven this year. Nelson added that efforts are focused on network design, risk adjustment, and managing total cost of care to return to target margins.

Q: How should we think about the quarterly progression for MLR and the impact of the Inflation Reduction Act? A: Cowhey indicated that earnings would be more weighted to the first half of 2025, with MLRs lowest in the first quarter and higher in the fourth due to changes in Part D premiums and reinsurance protection. The progression of earnings and MLRs will reflect these impacts, with significant swings expected between quarters.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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