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CVS Health Corp Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- The company experienced positive prior period reserve development across all lines of business in Q4.
- The company successfully completed its three-year store closure plan and is progressing further footprint optimization in 2025.
- The company expects Healthcare Delivery performance to improve starting in 2026 as the current medical cost trends experienced across the industry are more appropriately reflected in rates and plan bids and the company's continued investments in this business mature.
- The company grew revenues to approximately $33 billion, an increase of over 23% YoY, reflecting growth in all lines of business.
- The company projects script growth of approximately 3.5% and revenue of approximately $134 billion for the Pharmacy and Consumer Wellness segment.
- Adjusted operating income decreased by 5% YoY due to continued pharmacy client price improvements, the loss of a large client, and the impact of higher healthcare costs in Health Care Delivery assets.
- Results in Q4 were lower due to a pull forward of the immunizations into Q3.
- Healthcare costs are increasing due to the combination of greater utilization, rising provider costs, labor shortages, and dramatic price hikes for branded pharmaceuticals.
- The company expects the contribution from net investment income to decline.
- The company expects to generate Health Care Benefits revenue of approximately $132 billion, as membership declines in Medicare Advantage and Individual exchange are offset by Medicare program changes and growth in other products.
- Health Care Benefits revenue is expected to be approximately $132 billion.
- The company expects to generate another 3-4 dollars of embedded adjusted EPS if it can get its Aetna business back to its target margins.
- The company projects its tax rate to be approximately 25.5%.
- The company expects Healthcare Delivery performance to improve starting in 2026.
- The company is encouraged by its opportunities in 2025 and is excited to demonstrate the enormous potential that it sees across CVS Health to unlock embedded earnings.
Q&A Highlights from CVS Health Corp Earnings Call Q4 2024
- Analyst asked about the progression of medical loss ratio (MLR) for the quarter and how it should be modeled for 2025, including the impact of the Inflation Reduction Act (IRA) on Health Care Benefits.
- Thomas Cowhey, the company's CFO, provided the following information:
- Thomas Cowhey, the company's CFO, provided the following information:
- Analyst asked about the headwind to growth in the first year of CostVantage implementation and when it would turn positive for the company.
- CostVantage is a new initiative focused on commercial contracts, and the company expects to see a headwind to growth in the first year of implementation. However, the company is confident that the headwind will turn positive in the future as they continue to improve their cost of goods and pass those savings on to customers.
- CostVantage is a new initiative focused on commercial contracts, and the company expects to see a headwind to growth in the first year of implementation. However, the company is confident that the headwind will turn positive in the future as they continue to improve their cost of goods and pass those savings on to customers.
- Analyst asked about the progress of Medicaid renewals and how the company expects to catch up over the course of 2025.
- The company has worked hard to renew Medicaid contracts, and they anticipate a 4.5% year-over-year increase as they start 2025. However, they have more work to do throughout the year to ensure the program is adequately funded and actuarially sound.
- The company has worked hard to renew Medicaid contracts, and they anticipate a 4.5% year-over-year increase as they start 2025. However, they have more work to do throughout the year to ensure the program is adequately funded and actuarially sound.
- Analyst asked about the company's outlook for the next bolus of renewals, which is expected to be around the third quarter.
- The company's current outlook does not assume that they will get the same level of rate increase when they see the next bolus of renewals. They are working on advocacy with all of their states to recognize actuarially sound rates, but the timing of rate increases may not be at the pace that they would like.
- The company's current outlook does not assume that they will get the same level of rate increase when they see the next bolus of renewals. They are working on advocacy with all of their states to recognize actuarially sound rates, but the timing of rate increases may not be at the pace that they would like.
- Analyst asked about the company's plans to improve health in America and their gratitude towards their over 300,000 dedicated colleagues.
- The company is committed to improving health in America and is grateful for their dedicated colleagues who work tirelessly to serve communities and improve health outcomes. They look forward to providing updates on their progress throughout the year.
- The company is committed to improving health in America and is grateful for their dedicated colleagues who work tirelessly to serve communities and improve health outcomes. They look forward to providing updates on their progress throughout the year.
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