CVS Health beat earnings estimates for the third consecutive quarter
The company's Aetna insurance business has benefited from prudent medical cost estimations, CEO says
CVS's drug benefit business and retail pharmacy see strong client retention and prescription volumes
Adds investor comment in paragraphs 6 and 18, CEO comment in paragraph 19
By Amina Niasse
NEW YORK, July 31 (Reuters) - CVS Health CVS.N raised its full-year profit forecast after exceeding Wall Street quarterly earnings estimates on Thursday, as tight oversight of higher medical costs led to improved performance for its Aetna health insurance business.
CVS shares jumped 5.6% to $65.80 in early trading after beating analysts' estimates for the third successive quarter, marking a turnaround from last year, when it repeatedly fell short of expectations.
Those problems had stemmed from an unexpectedly sharp rise in medical costs in its Medicare Advantage plans for people aged 65 and older or with disabilities, and struggles with its chain of pharmacies.
"Nothing is a surprise to us this quarter," CEO David Joyner said in an interview with Reuters.
Rivals including UnitedHealth UNH.N, Elevance ELV.N and Centene CNC.N have detailed higher-than-expected medical costs in the second quarter due to a sicker patient profile and mismatched government payment rates, primarily in Medicaid plans for low-income people. Their shares were all trading lower on Thursday.
"CVS learned its lessons a year ago," said Kevin Gade, chief operating officer at Bahl & Gaynor, which holds some CVS shares.
Joyner, who was named CEO in October, said Aetna experienced higher costs in its Medicare Advantage plans sold through groups such as employers or retiree organizations, but those costs were accurately anticipated. Aetna aims to reprice half of those plans for 2026, he added.
CVS also cited improved performance in its pharmacy chain and pharmacy benefit management businesses.
"CVS had one of the cleanest prints we have seen so far this earnings season," said Evercore ISI analyst Elizabeth Anderson.
CVS shares are up 39% so far this year. Elevance, UnitedHealth, Molina and Centene are down 20%, 47%, 45%, and 57%, respectively.
Government payment pressure in Medicare Advantage plans has squeezed insurer margins this year, with the U.S. Centers for Medicare and Medicaid Services changing its calculations of how to reimburse plans for their sickest members.
CVS's Aetna insurance business had a medical loss ratio - the percentage of premiums spent on medical services - of just under 90% in the second quarter, lower than analysts' spending estimates of 91.16%, according to LSEG data.
The company plans to close 250 brick-and-mortar pharmacies this year in an effort to cut costs, and the company is reducing its government-sponsored health insurance plans.
Joyner said CVS's primary care unit for seniors, Oak Street Health, would be negatively impacted by these regulatory changes, but that they are manageable.
Revenue from CVS's health services segment, which includes its Caremark pharmacy benefit manager, rose 10.2% due to a more favorable drug mix and plan renewals from existing clients, the company said. Retail pharmacy and drug infusion business sales increased by 12.5% in the second quarter, which Joyner said was aided by increases in prescriptions filled.
Gade said CVS's Caremark business is likely benefiting from payment terms it received from Novo Nordisk NOVOb.CO after the PBM dropped Eli Lilly's LLY.N Zepbound from its national preferred coverage list for weight-loss medications in favor of Novo's Wegovy. Those terms have not been disclosed.
"Our clients needed a solution as they experience the rapid growth in the use of GLP-1s," said Joyner, referring to the class of popular drugs for weight loss and diabetes.
CVS reported an adjusted quarterly profit of $1.81 per share, topping analysts' estimates by 35 cents.
Due to the second-quarter beat, CVS raised its 2025 earnings forecast to $6.30 to $6.40 per share, from its prior view of $6.00 to $6.20. The low end of the new outlook exceeds the average analyst estimate of $6.12 per share, according to LSEG.
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(Reporting by Amina Niasse in New York and Sriparna Roy in Bengaluru; editing by Caroline Humer, Leslie Adler, Sriraj Kalluvila and Bill Berkrot)
((amina.niasse@thomsonreuters.com;))
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