CVS Health Corp. posted higher sales and profit in the third quarter, a sign that the drugstore chain’s cost-cutting strategy is paying off as it expands its health-care business.
Adjusted earnings came to $2.21 a share, 4 cents higher than a year ago, the company said in a statement Wednesday. Revenue in the period rose almost 11% to $89.8 billion, exceeding Street expectations of $88.3 billion. The company reaffirmed its full-year adjusted profit outlook of $8.50 to $8.70 a share.
CVS shares gained 1.1% before US markets opened. The stock has fallen 26% so far this year as of Tuesday’s close.
CVS has been grappling with rising costs in its pharmacy and insurance businesses and warned investors in August that will take a toll on profit over the next two years. The Woonsocket, Rhode Island-based company also announced a restructuring plan last quarter to streamline operations and reduce costs, which included eliminating 5,000 non-customer facing positions.
In the quarter, the company’s health insurance unit saw higher medical costs than analysts had forecast. The medical benefit ratio, the percentage of premiums going to patient care, was 85.7%, above analysts’ average estimate of 84.3%. The company cited higher usage of benefits in its Medicare plans. Sales in the health-insurance unit were $26.3 billion, a 17% increase from the year earlier that beat estimates.
Meanwhile, CVS and its rival Walgreens Boots Alliance Inc. are facing walkouts and protests from its workforce. More than 2,000 US pharmacists and technicians plan to walk off the job this week to pressure national drugstore chains to address poor working conditions, according to organizers.
Revenue in CVS’s health services segment, which includes includes pharmacy benefits management, rose 8.4% to $46.9 billion from a year earlier, beating analysts’ estimate of $45 billion. Growth in the division was driven in part by the recent acquisitions of primary care clinics Oak Street Health Inc. and home health-care provider Signify Health Inc.
Investors may be focused on challenges to the Caremark pharmacy benefits business after a high-profile client loss in August, when Blue Shield of California said it would shift much of its pharmacy purchasing to other companies.
CVS recently announced a rebound in Medicare quality ratings after an unexpected drop last year. The company now expects to have 87% of members in highly-rated plans in 2024, which will translate into bonus payments that lift revenue in 2025.
--With assistance from John Tozzi.