CVS Health (NYSE: CVS) reported fourth-quarter earnings that exceeded analyst expectations on Wednesday, driven by strong sales in its pharmacy and insurance businesses.
However, the company continues to face rising medical costs in its insurance unit, Aetna, which weighed on profits.
The healthcare giant, which recently underwent a leadership change, provided an adjusted earnings outlook of $5.75 to $6 per share for 2025, aligning with Wall Street’s expectations.
CVS did not issue a revenue forecast for the year, reflecting ongoing uncertainties in its business segments.
The company’s stock rose 10% in premarket trading following the earnings announcement.
CVS earnings: strong growth seen, but insurance business struggles
While CVS saw strong revenue growth, its insurance business struggled with higher medical expenses.
The company’s insurance unit, which includes Medicare Advantage plans, booked $32.96 billion in revenue for the fourth quarter, marking a 23% increase from a year earlier.
However, the segment reported an adjusted operating loss of $439 million, compared to an operating income of $676 million in the same period last year.
The loss was driven by higher-than-expected medical costs as more Medicare Advantage patients returned to hospitals for delayed procedures.
Additionally, CVS’ lower Medicare Advantage star ratings for 2024 affected reimbursements, putting further strain on the segment’s performance.
The company’s medical benefit ratio—a key measure of how much insurers pay in medical claims compared to the premiums they collect—rose to 94.8% from 88.5% a year earlier.
While this increase reflects higher costs, the ratio was slightly better than the 95.9% analysts had anticipated.
CVS’ retail pharmacy and health services see mixed results
CVS’ pharmacy and consumer wellness division reported $33.51 billion in revenue for the fourth quarter, up more than 7% from a year earlier.
Growth in prescription volumes helped boost the segment’s performance, though lower pharmacy reimbursement rates and the impact of generic drugs weighed on margins.
Meanwhile, the company’s health services unit, which includes pharmacy benefit manager Caremark, generated $47.02 billion in revenue, a 4% decline from the same quarter in 2023.
The decrease was partially due to the loss of a major client, with Tyson Foods confirming earlier that it had switched to a different pharmacy benefit manager.
Despite the decline, CVS processed 499.4 million pharmacy claims in the quarter, indicating continued strength in its pharmacy benefits management business.
Leadership change and cost-cutting plans
The latest earnings report comes amid a broader turnaround effort at CVS.
David Joyner, a longtime executive, took over as CEO in October, replacing Karen Lynch. The management shake-up is part of the company’s plan to stabilize profitability and improve stock performance.
CVS has also announced a $2 billion cost-cutting initiative over the next several years as it looks to streamline operations and offset rising expenses.
The company is focusing on improving efficiency in its insurance and pharmacy segments while navigating headwinds from lower Medicare Advantage reimbursements and pharmacy pricing pressures.
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