The CVS pharmacy logo is displayed on a sign above a CVS Health Corp. store in Las Vegas, Nevada on Feb. 7, 2024.
Patrick T. Fallon | AFP | Getty Images
CVS Health on Wednesday slashed its full-year profit outlook again and announced a new plan to cut $2 billion in expenses over several years as higher medical costs squeeze the company and the broader U.S. insurance industry.
The cost-cutting plan will streamline the company’s operations, increase the use of artificial intelligence and automation and “rationalize” its business portfolio, among other efforts, executives said during an earnings call Wednesday.
The retail drugstore chain also said Aetna President Brian Kane, the top executive at the CVS-owned insurance unit, will leave the company immediately based on the current performance and outlook for the segment.
CVS CEO Karen Lynch will take over management of the business and CFO Thomas Cowhey will also help to oversee it. Katerina Guerraz, CVS Health’s chief strategy officer and head of enterprise affairs, will also become the insurance unit’s chief operating officer.
“We are disappointed by the current performance and outlook for the health-care benefit segment, and I have decided to make leadership changes effective immediately,” Lynch said on the call. She later added that the company is “committed to returning health-care benefits to its rightful place, and will drive execution and address the challenges facing this business.”
The company expects 2024 adjusted earnings of $6.40 to $6.65 per share, down from previous guidance of at least $7 per share. Analysts surveyed by LSEG were expecting full-year adjusted profit of $6.97 per share.
CVS also cut its unadjusted earnings guidance to a range of $4.95 to $5.20 per share, down from at least $5.64 per share.
It marks the third consecutive quarter that the company has lowered its 2024 profit guidance.
CVS said its new outlook reflects continued pressure on its health insurance segment, which is seeing increased medical costs and the “unfavorable impact” of the company’s Medicare Advantage star ratings. Those ratings help Medicare patients compare the quality of Medicare health and drug plans.
CVS owns health insurer Aetna. The company’s insurance division includes plans by Aetna for the Affordable Care Act, Medicare Advantage and Medicaid, as well as dental and vision.
Medical costs in the second half of the year could be higher than those in the first, which the new guidance reflects, Cowhey said during the call.
Cowhey added that if medical costs remain high, the company may be required to take an in-year premium deficiency reserve in its Medicare business for 2024. That is a liability that an insurer may need to cover if future premiums are not enough to pay for anticipated claims and expenses.
A potential premium deficiency reserve could “change the cadence of earnings between third and fourth quarters,” he said.
Insurers such as UnitedHealth Group, Humana and Elevance Health have seen…
Read More: CVS Health (CVS) earnings Q2 2024