CVS reports mixed earnings, withholds guidance in Joyner's first earnings report as CEO.

• Its bottom line was negatively impacted by higher medical costs during the third quarter, resulting in mixed results for CVS Health.
• As a result of the company anticipating continued pressure on its performance due to rising medical costs, it is not providing a formal outlook at this time, a spokesperson stated.
• David Joyner, the CEO of the struggling retail drugstore chain, presented his first earnings report. Aetna, CVS's health insurer, appointed Steve Nelson, the former CEO of UnitedHealthcare, as its new president, effective immediately.

On Wednesday, the retail drugstore chain reported mixed third-quarter results, with higher medical costs negatively impacting its bottom line. This is CEO David Joyner's first earnings report since taking over the troubled chain.

The company anticipates that increased medical expenses will negatively impact its performance this year, so it is not offering a formal forecast at present. Instead, CVS will offer directional commentary on its expectations during its earnings call.

"As the new leader of CVS Health, Joyner stated that building credibility and earning the trust of investors is one of his top priorities. To achieve this, any guidance provided should be achievable, with clear opportunities for outperformance. This is a core principle for Joyner."

After three consecutive quarters of reduced full-year guidance, Wall Street's confidence in CVS has decreased, leading to an activist investor pushing for changes to improve the company's performance.

Nearly 27% of the company's shares have decreased for the year due to the increase in medical costs in its health insurance unit, Aetna, resulting from seniors returning to hospitals for delayed procedures following the Covid-19 pandemic.

"Joyner stated that although the entire industry has experienced increased demand post-pandemic, our company has been more affected than others. Our top priority is maintaining the stability of our business."

On Wednesday, CVS appointed Steve Nelson as the new president of Aetna, effective immediately. Joyner and Nelson will work together to convince investors that CVS can effectively manage the higher-than-expected costs.

Prem Shah, a longtime company executive, will assume a new, enlarged role that encompasses the company's retail pharmacy, pharmacy benefits, and health care delivery businesses, according to CVS.

Shares of CVS rose nearly 6% in premarket trading Wednesday.

Based on a survey of analysts by LSEG, the actual results reported by CVS for the third quarter differed from Wall Street's expectations for the same period.

• Earnings per share: $1.09 adjusted vs. $1.51 expected
• Revenue: $95.43 billion vs. $92.75 billion expected

On Oct. 18, CVS announced that Joyner had replaced Lynch as CEO and revealed that it had conducted a strategic review resulting in layoffs, write-downs, and the closure of 271 more retail stores. Additionally, the company announced a plan to cut $2 billion in expenses over the next several years, which includes cutting nearly 3,000 jobs, or less than 1% of its workforce.

The pharmacy business and insurance unit contributed to a 6.3% increase in CVS's third-quarter sales, which totaled $95.43 billion.

In contrast to the previous year, the company's net income for the third quarter was $71 million, or 7 cents per share, which is significantly lower than the $2.27 billion, or $1.75 per share, recorded in the year-earlier period.

The company's estimate of adjusted earnings per share for the quarter was $1.09, which is consistent with the actual results.

The company's adjusted and unadjusted earnings included a charge of 63 cents per share, or $1.1 billion, from "premium deficiency reserves" in its insurance business related to anticipated losses in the fourth quarter of 2024.

An insurer may need to cover a liability if future premiums are not enough to pay for anticipated claims and expenses. Premium deficiency reserves effectively accelerate future losses, shifting the earnings cadence between the third and fourth quarters, a spokesperson told CNBC.

During the fourth quarter, CVS anticipates that premium deficiency reserves will be substantially released, positively impacting results in that period. The spokesperson stated that CVS does not anticipate booking a premium deficiency reserve for 2025.

In the third quarter, CVS recorded restructuring charges of $1.17 billion, which includes $607 million for additional stores it plans to close in 2025 and $293 million related to layoffs.

Pressure on insurance unit

During the quarter, CVS's insurance business generated $33 billion in revenue, representing a 25% increase from the previous quarter. Despite this, the division recorded an adjusted operating loss of $924 million in the third quarter.

The medical benefit ratio of the insurance unit increased from 85.7% to 95.2%, indicating that the company paid out more in benefits than it collected in premiums, resulting in lower profitability.

In 2023, the health services segment of CVS generated $44.13 billion in revenue for the quarter, which was a 5.97% decrease compared to the same quarter in 2023.

One of the largest pharmacy benefits managers in the country, Caremark, negotiates drug discounts with manufacturers on behalf of insurance plans and creates lists of medications that are covered by insurance and reimburses pharmacies for prescriptions.

During the quarter, the health services division of CVS processed 484.1 million pharmacy claims, a decrease from the 579.6 million claims processed in the previous year.

The pharmacy and consumer wellness division of the company generated $32.42 billion in sales for the third quarter, representing a 12.42% increase from the same period last year. This unit offers prescription dispensing services in CVS's over 9,000 retail pharmacies, as well as other pharmacy services such as vaccinations and diagnostic testing.

The unit's sales were negatively impacted by pharmacy reimbursement pressure, the launch of new generic drugs, and decreased store count, which led to lower front-store volume.

Joyner stated that CVS's market share in the retail pharmacy industry has reached a record high of 27.3%.