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Dive summary:
- CVS Health raised its 2025 profit expectations after the health giant’s Aetna pharmacy and health insurance units improved their performance in the third quarter.
- CVS Now expect adjustments for the entire year earnings between $6.55 and $6.65 per share, up from its previous guidance of between $6.30 and $6.40 per share, according to financial results released Wednesday.
- However, the company suffered a loss in the third quarter, driven by a $5.7 billion goodwill impairment charge tied to CVS’ health care delivery assets, particularly its decision to slow growth at its Oak Street Health senior care clinics, CEO David Joyner said on an earnings call Wednesday morning.
Diving information:
CVS beat Wall Street expectations for earnings and revenue in the third quarter, which is overall a “positive step” for the healthcare giant even as it faces headwinds, JP Morgan analyst Lisa Gill wrote in a Wednesday note.
The company is in the midst of a turnaround effort at Aetna after the insurer faced a rocky 2024 hampered by higher medical spending on government programs.
CVS’s payer peers have also struggled this year with higher medical costs in government programs such as Medicare Advantage, Medicaid and the Affordable Care Act exchanges. Insurers offering ACA plans also face significant policy uncertainty stemming from the potential expiration of more generous subsidies for low- and middle-income enrollees that are set to expire at the end of the year.
CVS is more insulated from the ACA’s woes as the company plans to exit individual exchanges by 2026. Meanwhile, the healthcare giant is seeing improved performance at Aetna, prompting CVS to raise its 2025 earnings guidance.
Aetna Revenue of nearly $36 billion in the third quarter increased more than 9% year over year. The division generated $53 million in operating income in the third quarter, compared with a loss of $1.2 billion in the same period last year.
The improvement was driven by better performance in its government businesses, the healthcare giant said.
The unit’s medical loss ratio, a key indicator of patient care spending, fell to 92.8%, compared to 95.2% in the same quarter last year.
“We believe this momentum will continue not only into the fourth quarter, but also into 2026. So we’re going to build on that momentum,” Aetna President Steve Nelson said during the call. “That said, we obviously respect the high trend environment and it’s the first year of a multi-year recovery.”
However, CVS’ health services segment, which includes its massive Caremark pharmacy benefit manager and health care delivery assets, faced challenges in the quarter.
Although revenue rose nearly 12% year over year to $49.3 billion, the division posted an operating loss of $3.9 billion, down from revenue of $2.1 billion in the same period last year, due to the impairment charge.
CVS said the writedown is due to a reduction in the number of new primary care clinics it plans to open starting next year. The company also hopes close several Oak Street clinics.
CVS decided to close underperforming clinics where the healthcare giant did not “see a reasonable path to sustainable margins,” Chief Financial Officer Brian Newman said on the call.
On an adjusted basis (without amortization), healthcare operating income still fell, from $2.2 billion to $2.1 billion year over year.
Still, the performance of the healthcare delivery business in the third quarter was in line with CVS’s expectations, according to Joyner.
“Despite this update, value-based care remains a critical component of our strategy,” he said. “The reasons for believing in this business have not changed, but the market is evolving and we are adapting our strategy to bring financial performance back in line with our expectations.”
Overall, CVS posted revenue of $102.9 billion in the quarter, up nearly 8% year over year and a record for the company.
CVS posted a net loss of nearly $4 billion, compared with revenue of $71 million in the same period last year.
