CVS Reports Solid Q4, But Cuts 2024 Guidance
Today, CVS Health Corp. released its operating results for the fourth quarter and year ended Dec. 31, 2023, with its earnings for the quarter coming in ahead of analysts’ expectations.
For Q4, total revenues increased to $93.8 billion, up 11.9% compared to prior year. That growth was mainly driven by strength in its health services business. The company’s net income was $2 billion, down slightly from $2.3 billion a year ago. GAAP diluted EPS was $1.58 and adjusted EPS was $2.12.
Full-year highlights included total revenues growing to $357.8 billion, up 10.9% compared to the company's prior year. GAAP diluted EPS was $6.47 and adjusted EPS was $8.74. Generated cash flow from operations was $13.4 billion.
Operating income increased 72.8% for FY2023, primarily due to the absence of $5.8 billion of opioid litigation charges and a $2.5 billion loss on assets held for sale related to the write-down of the company’s Omnicare long-term care business, both of which were recorded in the prior year. These increases were partially offset by $507 million of restructuring charges.
During Q2 in 2023, CVS developed an enterprise-wide restructuring plan intended to streamline and simplify the organization, improve efficiency and reduce costs. Restructuring charges include severance and employee-related costs, asset impairment charges and a stock-based compensation charge.
CVS made headlines in the summer of 2023 when it announced that it was shedding 5,000 jobs, primarily affecting corporate positions. The company said the move was intended to reduce costs as the retail pharmacy giant sharpened its focus on health care services.
More recently, CVS said it plans to close dozens of pharmacies inside Target stores “based on our evaluation of changes in population, consumer buying patterns and future health needs,” according to a company spokeswoman.
And earlier this week, the company announced it is selling all 22 of its retail drugstores in Puerto Rico to Caribe Pharmacy Holdings. In an email to The Associated Press, CVS said the deal would be completed in April and that the buyer plans to continue all operations and retain all employees.
Meanwhile, the big news that came out of today's earnings report was the cutting of CVS' 2024 guidance due to “potential implications” of higher medical costs for the year.
As reported by The Wall Street Journal, the downgrade in its projected results for 2024 might reignite investors’ fears about medical cost increases squeezing profits in the Medicare insurance business. Medicare-focused insurer Humana posted a steep loss for its recent fourth quarter.
CVS noticed rising use of health care services by members in its Medicare plans in the last quarter of 2023.
The company’s 2024 guidance changes include:
- Revised GAAP diluted EPS guidance to at least $7.06 from at least $7.26
- Revised adjusted EPS guidance to at least $8.30 from at least $8.50
- Revised cash flow from operations guidance to at least $12.0 billion from at least $12.5 billion
Overall, CVS Health President and CEO Karen S. Lynch was pleased with the company's latest earnings report.
“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," commented 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.”
In December, CVS introduced a new pharmacy reimbursement model that brings greater transparency and simplicity to the system. CVS CostVantage will define the drug cost and related reimbursement using a simplified formula built on the cost of the drug, a set markup and a fee that reflects the care and value of pharmacy services. CVS Pharmacy plans to launch CVS CostVantage to commercial payors in 2025.
CVS also introduced CVS Caremark TrueCost, a model innovation that offers client pricing reflecting the true net cost of prescription drugs, with visibility into administrative fees. Simplified pricing will allow members to have stable access to the company’s national pharmacy network. CVS Caremark plans to launch CVS Caremark TrueCost in 2025.
With its CVS Pharmacy subsidiary, Woonsocket, R.I.-based CVS Health has over 300,000 colleagues – including more than 40,000 physicians, pharmacists, nurses and nurse practitioners. The company is No. 7 on The PG 100, Progressive Grocer’s 2023 list of top food and consumables retailers in North America.
