CVS Health has revised its 2024 financial outlook downward for the third time this year, grappling with persistent issues in its health insurance division. The company announced a leadership change, with CEO Karen Lynch now taking charge of the insurance segment, following the departure of Executive Vice President Brian Kane. This transition comes as CVS Health faces rising costs and challenges in its Medicare Advantage plans, according to ABC News.
The company's latest forecast reflects significant setbacks in its insurance business, which has been adversely affected by increased claims and declining quality ratings for Medicare Advantage coverage. Additionally, CVS Health has encountered pressures related to Medicaid coverage management across various states.
The impact of these issues is evident in CVS Health's financial performance. The company reported a 39% drop in adjusted operating income from its health benefits division, totaling $938 million for the quarter. The pharmacy sector also saw a 12% decrease in adjusted operating income, despite an increase in prescription volumes. This decline is attributed to tighter reimbursement rates, as reported by the Associated Press.
CVS Health has also faced declines in non-pharmacy store sales, partly due to reduced customer demand for COVID-19 test kits. To address these financial challenges, the company plans a $2 billion cost-cutting initiative over several years, which will incorporate artificial intelligence and automation to streamline operations.
In addition to these changes, CVS Health is nearing the completion of a three-year plan to close 900 stores, having shut down 851 locations so far. The company's overall profit fell by more than 7% to $1.77 billion in the latest quarter, with adjusted earnings per share at $1.83 on $91.2 billion in revenue. This falls short of the Wall Street expectations of $1.73 per share on $91.41 billion in revenue, according to FactSet.
Shares of CVS Health have declined by 25% this year, with the stock dropping to $57.70 on Wednesday morning, while broader market indexes saw gains. The company's latest forecast now projects adjusted earnings per share for the year to be between $6.40 and $6.65, significantly below the initial December estimate of at least $8.50 per share and the Wall Street consensus of $6.96 per share.
