Q4 2024 Earnings Summary
- Evernorth's strong performance and growth outlook: Evernorth delivered a strong result in 2024, with pretax adjusted earnings growing 14% to $2.1 billion. The company expects Evernorth to continue delivering income growth within its long-term growth rate range of 5% to 8%, indicating robust performance and positioning for another good year in 2025.
- Confidence in delivering 2025 EPS and commitment to long-term growth: Cigna is confident in its ability to deliver an EPS of at least $29.50 for 2025 and remains committed to its long-term EPS growth algorithm of 10% to 14%, demonstrating strong future performance expectations despite a dynamic environment.
- Sale of Medicare business and capital deployment: The sale of Cigna's Medicare business is on track to close in the first quarter, with the majority of proceeds expected to be used for share repurchases, enhancing shareholder value.
- Margins are under pressure due to higher-than-expected high-cost claims in the stop-loss business, particularly driven by specialty pharmaceuticals and high-acuity surgical activity. The company expects to recapture approximately 100 basis points of margin over the next two years, with the majority in 2026 and the remaining in 2027, indicating prolonged margin pressure in a significant part of the business. ,
- The increased frequency of high-dollar claimants, especially related to specialty drugs like KEYTRUDA and OCREVUS, and high-acuity surgical procedures suggest a structural shift toward higher costs. The company expects these elevated costs to continue into 2025, which may continue to impact profitability. ,
- Upcoming investments of up to $150 million in patient and provider-facing initiatives will increase costs in 2025, potentially putting additional pressure on earnings in the near term. ,
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +28% (from $51,114M to $65,649M) | The Total Revenue growth is driven by robust performance across all key segments—especially strong client wins and organic growth in Evernorth Health Services, Pharmacy, and Fees—reflecting improved market conditions compared to the previous lower base. |
Evernorth Health Services | +33% (from $40,519M to $53,744M) | The segment’s 33% YoY increase is primarily due to client wins and strong specialty service growth that built on earlier investments and digital capability enhancements, further capitalizing on an expanding customer base compared to the prior period. |
Other Operations | +50% (from $134M to $201M) | Other Operations saw a drastic improvement as increased premiums and net investment income related to COLI and run-off operations outweighed prior divestiture effects, marking a significant operational rebound from last year’s lower base. |
Pharmacy Revenues | +36% (from $36,604M to $49,941M) | The nearly 36% increase in Pharmacy Revenues reflects higher prescription drug utilization, strong client wins, and robust organic growth in Pharmacy Benefit Services—factors that built on prior period momentum and market demand. |
Fees and Other Revenues | +29% (from $3,045M to $3,928M) | Growth in Fees and Other Revenues is attributed to expanded affordability services within the pharmacy segment and wider service offerings, building on previous incremental revenue trends. |
Net Income | +39% (from $1,107M to $1,536M) | The 39% rise in Net Income largely results from improved operating margins across segments coupled with cost efficiencies, while overcoming challenges seen in earlier periods; this reinforces the company’s ability to leverage scale in a favorable market environment. |
EPS – Basic | +45% (from $3.54 to $5.12) | The EPS – Basic improvement is driven by a substantial increase in net income and further enhanced by share repurchase activities that reduced the weighted average shares outstanding, marking a notable recovery from the previous period’s levels. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted EPS | FY 2024 | no prior guidance | At least $28.40 | no prior guidance |
Evernorth Pretax Adjusted Earnings | FY 2024 | no prior guidance | At least $7.0B | no prior guidance |
Cigna Healthcare Pretax Adjusted Earnings | FY 2024 | no prior guidance | At least $4.775B | no prior guidance |
Medical Care Ratio (MCR) | FY 2024 | no prior guidance | 81.7% to 82.5% | no prior guidance |
Share Repurchases | FY 2024 | no prior guidance | 16.9M shares for $5.7B YTD | no prior guidance |
2025 EPS Growth | FY 2025 | no prior guidance | Expected to grow by at least 10% | no prior guidance |
Consolidated Adjusted Revenues | FY 2025 | no prior guidance | At least $252B | no prior guidance |
Consolidated Adjusted Income from Operations | FY 2025 | no prior guidance | At least $7.9B | no prior guidance |
Adjusted EPS | FY 2025 | no prior guidance | At least $29.50 | no prior guidance |
Cash Flow from Operations | FY 2025 | no prior guidance | Approximately $10B | no prior guidance |
Capital Expenditures (CapEx) | FY 2025 | no prior guidance | Approximately $1.4B | no prior guidance |
Shareholder Dividends | FY 2025 | no prior guidance | Approximately $1.6B ($1.51/share) | no prior guidance |
Weighted Average Shares Outstanding | FY 2025 | no prior guidance | 266M to 270M shares | no prior guidance |
Adjusted SG&A Ratio | FY 2025 | no prior guidance | Approximately 5.4% | no prior guidance |
Consolidated Adjusted Tax Rate | FY 2025 | no prior guidance | Approximately 19% | no prior guidance |
Evernorth Adjusted Earnings | FY 2025 | no prior guidance | At least $7.2B | no prior guidance |
Cigna Healthcare Adjusted Earnings | FY 2025 | no prior guidance | At least $4.1B | no prior guidance |
Medical Care Ratio (MCR) | FY 2025 | no prior guidance | 83.2% to 84.2% | no prior guidance |
Total Medical Customers | FY 2025 | no prior guidance | Approximately 18.1M | no prior guidance |
Investments | FY 2025 | no prior guidance | Up to $150M | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Evernorth’s Specialty Pharmacy and Biosimilar Strategy, Including EnCircleRx for GLP-1 Coverage | Consistent growth each quarter. Q3: 33% HUMIRA script transition, ~8M lives in EnCircleRx. Q2: 20% HUMIRA script transition, ~2M lives. Q1: Double-digit growth in specialty, ~1M lives in EnCircleRx. | Continued strong growth, with nearly 50% of HUMIRA scripts transitioned to biosimilars and ~8M lives covered by EnCircleRx. Emphasis on $0 out-of-pocket costs for patients and expanding biosimilar offerings. | Steady expansion across all quarters; core growth driver. |
Elevated Medical Cost Trends Persist, Affecting Margins and Prompting Higher Pricing for Employers | Q3: Elevated trend expected to persist into 2025. Q2: Acknowledged elevated cost trends but in line with pricing assumptions. Q1: Persisting cost pressures factored into pricing. | Higher-than-expected medical costs, especially in stop-loss, pressuring margins. Pricing actions and margin recapture plans are in place. | Ongoing challenge across all quarters, with intensifying cost pressures. |
Stop-Loss Margin Pressure from High-Cost Specialty Claims Emerges in Q4 2024, Multi-Year Recapture Plan | No mentions in prior quarters (Q3, Q2, Q1) regarding stop-loss margin pressure from specialty claims or a multi-year recapture plan. | Newly highlighted in Q4 2024, with margin pressure from high-cost specialty claims like oncology. Recapturing ~100 bps of margin over two years. | New topic in Q4 2024. |
VillageMD Impairment | Q3: $1B after-tax net realized investment loss for VillageMD, treated as a special item. Q2: No mention. Q1: $1.8B after-tax impairment charge. | No mention of impairment, only the absence of 2024 dividend in 2025. | Previously significant, now largely absent from discussions. |
Medicare Divestiture Gains Prominence, Proceeds Allocated to Share Repurchases | Q3: Reiterated plan to close sale to HCSC in Q1 2025, with most proceeds for share buybacks. Q2: General progress noted, no specific mention of repurchases. Q1: Expected to close in Q1 2025, no detail on share repurchases. | Prominent in Q4 as divestiture is on track to close in Q1 2025; proceeds to be used mainly for share repurchases. ~$12B in revenue to be removed upon closing. | Increasing emphasis in Q3 and Q4. |
Ongoing Optimism About EPS Growth Targets Despite Intensifying Cost Pressures and Structural Shifts in Healthcare | Q3: Targeting ≥$28.40 EPS for 2024, ~10%+ for 2025. Q2: Reaffirmed ≥$28.40 for 2024 with 13% YOY growth, citing strong portfolio. Q1: Raised full-year 2024 EPS guidance to ≥$28.40 after a strong start. | Confidence in at least $29.50 EPS for 2025, reaffirming 10–14% long-term growth amid higher stop-loss costs and specialty drug trends. | Consistently positive throughout the year, despite mounting pressures. |
Biosimilars and GLP-1 Therapies as Significant Future Growth Drivers and Margin Opportunities | Q3: 33% transition to HUMIRA biosimilars, ~8M lives in EnCircleRx, GLP-1 top cost driver. Q2: 20% transition, ~2M lives in EnCircleRx. Q1: Introducing biosimilars at ~85% discount, ~1M EnCircleRx enrollees. | Highlighted HUMIRA biosimilars (~50% adoption) and ~8M lives in EnCircleRx, with large savings potential. Forecasting $100B in specialty drug spend to face competition in next five years. | Accelerating adoption and growing enrollment each quarter. |
Structural Shift Toward Higher-Dollar Claims from Specialty Drugs (e.g., KEYTRUDA, OCREVUS) Raises Cost Concerns | No mention in Q3, Q2, or Q1 regarding KEYTRUDA or OCREVUS as specific cost drivers. | Newly emphasized upward pressure on high-cost claims from specialty injectables like KEYTRUDA, OCREVUS, and oncology/cardiac surgeries. Cited as a long-term structural shift. | New discussion in Q4, highlighting long-term cost implications. |
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Stop-Loss Impact on Earnings
Q: What's causing stop-loss underperformance and margin recovery plans?
A: Our stop-loss business faced higher claims due to more high-cost claimants, driven by specialty drugs like Keytruda and Ocrevus, and high-acuity surgeries in oncology and cardiac care. This led to margins being below expectations in 2024. We anticipate 100 basis points of margin improvement across Cigna Healthcare by 2027, with most captured in 2026, as we reprice our stop-loss products. -
2025 Earnings Guidance
Q: How does the Medicare divestiture affect 2025 earnings?
A: The Medicare divestiture, expected to close in the first quarter, removes about $12 billion in revenue from 2024. We've reflected this in our 2025 revenue and income guidance and plan to use the majority of proceeds for share repurchases. Adjusting for the divestiture, our normalized Cigna Healthcare earnings would have been slightly below $4 billion in 2024. -
Evernorth Income Outlook
Q: Why is Evernorth's income growth lower in 2025?
A: Evernorth's 2025 income growth is within our long-term range of 5-8%, adjusting for the absence of VillageMD net investment income recorded in 2024, stranded overhead from the Medicare divestiture, and up to $150 million earmarked for investments ,. We're confident in Evernorth's strong performance and long-term growth prospects ,. -
Client Retention Amid Repricing
Q: Will stop-loss repricing impact client retention?
A: Our stop-loss coverage is integrated with employer offerings, comprising about 20% of a client's costs. This multifaceted relationship provides a buffer in repricing. We expect to balance margin recovery with client persistency, leveraging our strong, long-term client relationships ,. -
Specialty Drugs Impact
Q: Are GLP-1s driving higher stop-loss claims?
A: No, GLP-1s are not the driver. The increased claims are due to high-cost specialty drugs like Keytruda and Ocrevus, and high-acuity surgical procedures in oncology and cardiac care. -
Capital Deployment Strategy
Q: What's your approach to capital deployment and acquisitions?
A: Our capital priorities remain consistent, focusing on supporting growth and evaluating strategic bolt-on acquisitions. In 2024, we deployed over $8.5 billion, mainly for share repurchases and dividends. We'll continue to prioritize growth of our core platforms and ongoing share repurchases. -
Express Scripts Initiatives
Q: How do new Express Scripts offerings affect profitability?
A: We don't see a change to our profit model. The vast majority of rebates are passed through today. We've announced innovations to lower out-of-pocket costs, ensuring customers benefit from negotiated discounts at the pharmacy counter. These solutions will become our default offerings, enhancing affordability without impacting our margins. -
Medicare Divestiture Details
Q: Any adjustments to the Medicare sale to HCSC?
A: The Medicare business performed as expected in 2024, and we're on track to close the divestiture in the first quarter. There are typical financial adjustments to the final purchase price, but nothing significant beyond that. We saw strong membership growth for 2025, particularly in HMO products in mature markets. -
2025 Earnings Seasonality
Q: Will 2025 see elevated Q4 costs again?
A: No, 2025 should reflect a normal seasonal earnings pattern. The stop-loss impact in 2024 was identified late, but in 2025, we expect cost-sharing seasonality to drive lower MCRs in the first half and higher in the second half, with stop-loss MCRs leveling out over the year. -
Stop-Loss Margin Recovery Methods
Q: Other ways to recover stop-loss margins besides price increases?
A: Yes, we may adjust client pooling points or attachment points to reflect cost inflation, helping mitigate budget impacts for employers. These adjustments, along with our integrated client relationships, aid in margin recovery while maintaining client persistency.