CVS Health profits drop 37% in Q2 amid restructuring

CVS Health posted 10.3 percent higher revenues in its second-quarter earnings released Aug. 2 and beat investor expectations, but the company's net income dropped 37 percent year over year, largely because of company-wide restructuring, acquisition-related expenses, increased medical utilization among older adults and continued pressure on pharmacy reimbursements. 

During the second quarter, CVS developed a company-wide restructuring plan intended to improve efficiency and reduce costs, along with terminating certain initiatives. CVS recorded a $496 million pre-tax restructuring charge, and the initiative is expected to be mostly complete by the end of this year. On Aug. 1, the company said it is eliminating 5,000 "non-customer facing positions."

CVS Health closed on its acquisition of in-home care company Signify Health for $7.8 billion in March, adding more than 10,000 clinicians to its network. It closed on its $10.6 billion acquisition of Medicare-focused Oak Street Health in May, adding more than 170 medical centers across 21 states to its network.

CVS Health

  • Total revenues in the second quarter were $88.9 billion, a 10.3 percent increase year over year.

  • Operating income in the second quarter was $3.2 billion, a 30.7 percent decrease year over year. The company cited restructuring and acquisition-related transaction and integration costs, along with the absence of a $225 million pre-tax gain on the sale of PayFlex.

  • Net income was $1.9 billion in the second quarter, down from $3 billion year over year — a decrease of 37 percent.

  • The company's year-end earnings guidance is expected to range from $8.50 to $8.70 per share.

Healthcare benefits segment

  • Total revenues in the second quarter were $26.7 billion, up 17.6 percent year over year.

  • The medical benefit ratio increased to 86.2 percent in the second quarter, compared to 82.7 percent during the same period last year. The increase was partly driven by an increase in outpatient services by its Medicare Advantage population.

  • Medical membership as of June 30 was 25.6 million, an increase of 121,000 members since the same time last year, with the company noting a decline in Medicaid members due to redeterminations. There are 18.1 million commercial members, 3.4 million Medicare Advantage members, 1.4 million supplement members, 2.3 million Medicaid members and 6.1 million Medicare Part D plans.

Health services segment (formerly pharmacy services)

  • Total revenues in the second quarter were $46.2 billion, up 7.6 percent year over year. The increase was attributed to pharmacy drug mix, growth in specialty pharmacy, brand inflation and the acquisitions of Oak Street and Signify Health, and partially offset by continued pharmacy client price improvements.

  • Adjusted operating income was $1.9 billion in the second quarter, up 3.5 percent year over year.

  • Total pharmacy claims processed decreased 1.2 percent on a 30-day equivalent basis. The decrease was driven by a Medicaid customer contract change and a decline in COVID-19 vaccinations.

Pharmacy and consumer wellness segment (formerly retail)

  • Total revenues in the second quarter were $28.8 billion, up 7.6 percent year over year.

  • Adjusted operating income was $1.4 billion, down 17.4 percent since the same period last year. The decrease was primarily driven by continued pharmacy reimbursement pressure, decreased COVID-19 vaccinations and diagnostic testing, as well as lower store volume.

  • Prescriptions filled on a 30-day equivalent basis increased 1.1 percent year over year.

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