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CVS Health Q2 2024 Earnings Highlights: Challenges in Healthcare Benefits Offset by Strong Performance in Other Segments

by Team Lumida
August 7, 2024
in Equities
Reading Time: 8 mins read
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CVS Health Q2 2024 Earnings Highlights: Challenges in Healthcare Benefits Offset by Strong Performance in Other Segments
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CVS Health reported Q2 2024 adjusted earnings per share of $1.83 and adjusted operating income of $3.7 billion, with total revenues exceeding $91 billion. However, the company lowered its full-year 2024 adjusted EPS guidance to $6.40-$6.55 due to continued pressure in the healthcare benefits segment.

Top 5 Key Takeaways for Investors

  1. Healthcare Benefits segment underperformance led to leadership changes and revised guidance.
  2. Medicare Advantage margins expected to improve 100-200 basis points in 2025.
  3. Strong performance in Health Services and Pharmacy & Consumer Wellness segments.
  4. Implementation of CVS CostVantage and TrueCost models to reshape pharmacy pricing.
  5. $2 billion multi-year enterprise productivity initiative underway, with $500 million expected to impact 2025 earnings.

Summary

CVS Health’s Q2 2024 performance was mixed, with strong results in Health Services and Pharmacy & Consumer Wellness offset by challenges in the Healthcare Benefits segment. CEO Karen Lynch stated:

“The majority of our businesses are performing well and we continue to drive the integrated value of our company by executing on our strategy to connect people to the care and the coverage they need. However, we are disappointed by the current performance and outlook for the healthcare benefits segment, and I have decided to make leadership changes.”

Main Themes

  • Guidance: Full-year 2024 adjusted EPS guidance lowered to $6.40-$6.55
  • Competition: Strong retention rates in commercial and employer clients for 2025
  • Economy: Softening consumer demand noted in front-store sales
  • New Product Announcements: Implementation of CVS CostVantage and TrueCost models
  • Market-moving information: Leadership changes in Healthcare Benefits segment
  • Economic outlook: Continued elevated medical cost trends in Medicare Advantage

Insights

CVS Health is leveraging its integrated model to create value, with 57.7 million consumers accessing two or more CVS Health offerings, an increase of nearly 2.5 million. The company is also driving significant progress on the adoption of CVS CostVantage and CVS Caremark TrueCost, with agreements signed with eight pharmacy benefit managers representing over 50% of commercial scripts.

Market Opportunity

CVS Health now serves more than 186 million people across its various offerings. The company is expanding its reach in Medicare Advantage and individual exchange businesses, with medical membership growing to nearly 27 million members.

Market Commentary

The pharmacy benefit management (PBM) industry is facing scrutiny from regulators and legislators. CVS Health is actively working to address concerns by implementing new pricing models like TrueCost and educating policymakers on the value PBMs provide in reducing drug costs.

Customer Behaviors

CVS Health reported softening consumer demand in front-store sales, with same-store sales down by about 4% versus the same quarter last year. Excluding OTC test kits, same-store front-store sales were down about 2%.

Regulatory Policy

The company is addressing the Federal Trade Commission’s interim 6(b) study on PBMs. CVS Health disagrees with the FTC’s position and emphasizes its role in reducing drug costs and providing affordable access to critical medications like insulin.

Economy Insights

Karen Lynch commented on the consumer environment:

“We effectively navigated a changing consumer environment and delivered another strong quarter that exceeded our expectations.”

Industry Insights

The implementation of CVS CostVantage and TrueCost models could reshape pharmacy pricing across the industry, potentially leading to more transparent and predictable reimbursement structures for pharmacies and payors.

Key Metrics

Financial Metrics

  • Q2 2024 adjusted EPS: $1.83
  • Q2 2024 adjusted operating income: $3.7 billion
  • Total revenues: $91.2 billion
  • Operating cash flow (YTD): $8 billion

KPIs

  • Medical membership: Nearly 27 million members
  • Medical benefit ratio: 89.6%
  • Pharmacy market share: 27.2% (record high)
  • Signify revenue growth: 27% YoY
  • Oak Street revenue growth: 32% YoY

Competitive Differentiators

  1. Integrated healthcare model connecting pharmacy, benefits, and care delivery
  2. Implementation of innovative pricing models (CostVantage and TrueCost)
  3. Strong market share in retail pharmacy (27.2%)
  4. Expanding healthcare delivery assets (Signify and Oak Street)

Key Risks

  1. Continued pressure in Healthcare Benefits segment, particularly in Medicare Advantage
  2. Potential for further medical cost trend acceleration
  3. Regulatory scrutiny of PBM industry
  4. Softening consumer demand impacting front store sales

Analyst Q&A Focus Areas

  1. Medicare Advantage cost trends and 2025 bid strategy
  2. Implementation and impact of CVS CostVantage and TrueCost models
  3. Leadership changes in Healthcare Benefits segment
  4. Enterprise productivity initiatives and cost savings

CVS Health Summary:

CVS Health faces near-term challenges in its Healthcare Benefits segment but remains confident in its long-term strategy and integrated model. The company is focused on improving Medicare Advantage margins, implementing innovative pricing models, and driving enterprise-wide productivity improvements. Investors should watch for the execution of these initiatives and potential improvements in medical cost trends as key indicators of the company’s future performance.

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© 2025 Lumida Wealth Management LLC is an SEC registered investment adviser. Privacy Policy. Cookies Policy.
Disclaimer Important Information This site is for informational purposes only. Information presented on this site does not constitute as investment advice.

Lumida Wealth Management LLC (‘Lumida”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.

Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

Any subsequent, direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

‍Lead Capture Forms: By submitting your contact information in the forms on this site, you are not obligated to invest in Lumida's product or services.
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