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The Cigna Group Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- The board of directors declared an 8% increase to the quarterly dividend to $1.51 per share and increased the share repurchase authority to $10.3 billion.
- Evernorth continues to drive strong results in line with expectations, primarily driven by the Specialty and Care Services segment.
- The company returned $8.6 billion to shareholders through dividends and share repurchase.
- The company is confident in its long-term strategy and its ability to deliver sustainable growth through its differentiated portfolio of businesses.
- Pre-tax adjusted earnings increased to $1.2 billion as the company's differentiated capabilities continue to drive affordability and value to its patients, customers, and clients.
- Enterprise earnings results fell short of expectations driven by higher than expected medical cost in stop loss products within the Cigna Healthcare segment.
- Variability was more pronounced in Q4 due to an increase in the number of high-cost claimants related to cost pressures from the continued acceleration in the prescribing and use of specialty medications as well as elevated high acuity surgical activity.
- The company is disappointed by the shortfall in Q4.
- The company expects full-year 2025 adjusted earnings of at least $7.2 billion in Evernorth, representing YoY growth within the long-term growth target range on a normalized basis.
- The company expects to use the majority of the proceeds for share repurchase.
- The company expects to recapture approximately 100 bps of margin in the overall Cigna Healthcare segment over the next two years, with the majority in 2026 and the remaining in 2027.
- The company expects strong growth, excluding the Medicare business, in the 6% range.
- The company expects another year of good growth across the enterprise.
Q&A Highlights from The Cigna Group Earnings Call Q4 2024
- Analyst asked about the Evernorth guide for 2025 and its 3% operating income growth starting point.
- Brian Evanko, the company's CFO, explained that the stop loss products experienced greater frequency of high-dollar claimants, particularly driven by high-cost specialty pharmaceuticals and high acuity surgical activity. The specialty drugs that drove the upward pressure were not GLP-1s but rather specialty injectables, such as KEYTRUDA and OCREVUS. The company's outlook for Evernorth's income growth in 2025 is within the long-term growth rate range of 5% to 8%, after adjusting for factors such as the absence of VillageMD net investment income and the Evernorth share of stranded overhead from the Medicare divestiture. The company has earmarked up to $150 million across the company for incremental 2025 investments in patient and provider-facing initiatives, and the guidance reflects a portion of that spending in the Evernorth segment.
- Brian Evanko, the company's CFO, explained that the stop loss products experienced greater frequency of high-dollar claimants, particularly driven by high-cost specialty pharmaceuticals and high acuity surgical activity. The specialty drugs that drove the upward pressure were not GLP-1s but rather specialty injectables, such as KEYTRUDA and OCREVUS. The company's outlook for Evernorth's income growth in 2025 is within the long-term growth rate range of 5% to 8%, after adjusting for factors such as the absence of VillageMD net investment income and the Evernorth share of stranded overhead from the Medicare divestiture. The company has earmarked up to $150 million across the company for incremental 2025 investments in patient and provider-facing initiatives, and the guidance reflects a portion of that spending in the Evernorth segment.
- Analyst asked about clients shifting more towards wanting more of the rebate retention and the impact on profitability over time.
- David Michael Cordani, the company's CEO, responded that at the enterprise level, there is no change to the profit model. He explained that the company has worked for an elongated period of time through innovation and ongoing efficiency to continue to deliver more value while maintaining an attractive margin. The vast majority of rebates are pass-through today, and the company continues to offer choice in the marketplace. He also noted that 80% of Express Scripts customers have less than $100 cumulative out-of-pocket through the course of the entire year, but the company recognizes that some have more and needs to bring more precision to identify those patients. Eric Palmer, the company's President, then expanded on the company's track record of innovation, announcing new enhancements to make medicines more affordable, such as ensuring that customers do not have to pay a list price at the pharmacy counter and work to ensure that they receive the same price as their underlying plan would pay. He also mentioned additional series of patient and plan sponsor level reporting enhancements, building on the transparency the company delivers. The company offers choice to clients on how they
- David Michael Cordani, the company's CEO, responded that at the enterprise level, there is no change to the profit model. He explained that the company has worked for an elongated period of time through innovation and ongoing efficiency to continue to deliver more value while maintaining an attractive margin. The vast majority of rebates are pass-through today, and the company continues to offer choice in the marketplace. He also noted that 80% of Express Scripts customers have less than $100 cumulative out-of-pocket through the course of the entire year, but the company recognizes that some have more and needs to bring more precision to identify those patients. Eric Palmer, the company's President, then expanded on the company's track record of innovation, announcing new enhancements to make medicines more affordable, such as ensuring that customers do not have to pay a list price at the pharmacy counter and work to ensure that they receive the same price as their underlying plan would pay. He also mentioned additional series of patient and plan sponsor level reporting enhancements, building on the transparency the company delivers. The company offers choice to clients on how they
- Analyst asked about the company's capital deployment strategy, specifically regarding acquisitions and the regulatory environment.
- The company's capital priorities remain intact, with a focus on supporting the ongoing growth of the business, including CapEx, and evaluating strategic M&A and targeted M&A activities. The company has a disciplined process for evaluating potential acquisitions, and an attractive dividend remains a part of its capital deployment strategy. The company's three growth platforms continue to perform well, and it will continue to evaluate strategic bolt-on acquisitions that advance its portfolio.
- The company's capital priorities remain intact, with a focus on supporting the ongoing growth of the business, including CapEx, and evaluating strategic M&A and targeted M&A activities. The company has a disciplined process for evaluating potential acquisitions, and an attractive dividend remains a part of its capital deployment strategy. The company's three growth platforms continue to perform well, and it will continue to evaluate strategic bolt-on acquisitions that advance its portfolio.
- Analyst asked about specific items driving underperformance for 2025 and the company's outlook.
- The company is proud of its growth rate and track record, with a commitment to delivering a long-term growth rate of 5% to 8% for the Evernorth portfolio. The company is committed to delivering on its long-term growth rate and is excited about the opportunities for innovation across its Pharmacy Benefit Services and Specialty and Care Services portfolio. The company has three unique items that will impact its 2025 over 2024 income growth rate, including the recognition of the dividend from VillageMD, stranded overhead from the Medicare divestiture, and investments earmarked at the enterprise level. The long-term mega trends remain very intact, and the company will continue to evaluate strategic bolt-on acquisitions that advance its portfolio.
- The company is proud of its growth rate and track record, with a commitment to delivering a long-term growth rate of 5% to 8% for the Evernorth portfolio. The company is committed to delivering on its long-term growth rate and is excited about the opportunities for innovation across its Pharmacy Benefit Services and Specialty and Care Services portfolio. The company has three unique items that will impact its 2025 over 2024 income growth rate, including the recognition of the dividend from VillageMD, stranded overhead from the Medicare divestiture, and investments earmarked at the enterprise level. The long-term mega trends remain very intact, and the company will continue to evaluate strategic bolt-on acquisitions that advance its portfolio.
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