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CVS HEALTH Corp (CVS)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered a clean beat: Adjusted EPS $2.25 vs S&P Global consensus $1.67, and revenue $94.6B vs $93.6B; strength was broad-based with Adjusted Operating Income up 55% YoY and segment outperformance, especially in Health Care Benefits (HCB) where MBR improved to 87.3% on favorable prior-year development and better Medicare performance . Consensus values marked with an asterisk are from S&P Global.*
  • Guidance mix-shifted: GAAP EPS cut to $4.23–$4.43 (from $4.58–$4.83), but Adjusted EPS raised to $6.00–$6.20 (from $5.75–$6.00), and operating cash flow increased to ~$7.0B (from ~$6.5B), reflecting strong Q1, prudent trend assumptions, and macro caution .
  • Strategic actions should support multiple expansion: CVS will exit its ACA individual exchange business effective 2026 and is partnering with Novo Nordisk to prefer Wegovy starting July 1, 2025; management emphasized the integrated model’s ability to drive access and affordability for GLP‑1s .
  • Watch items: continued elevated MA trends (though showing early stabilization), $448M premium deficiency reserve (PDR) in ACA, Omnicare litigation charge ($387M), and consumer softness in front store; management reiterated a prudent outlook for the back half .

What Went Well and What Went Wrong

What Went Well

  • HCB recovery with better Medicare and prior-year development: Adjusted operating income rose to $1.99B (from $0.73B); MBR fell to 87.3% (−310 bps YoY) on favorable reserve development and improved Medicare Star Ratings . “Trends in Medicare, while elevated, were modestly better than our expectations… early signs of stabilization” — CFO Tom Cowhey .
  • Health Services leverage from purchasing economics: Adjusted operating income +17.6% YoY to $1.60B on improved purchasing economics and pharmacy mix, partially offset by client price improvements .
  • Pharmacy & Consumer Wellness (PCW) execution: Revenues +11.1% YoY to $31.9B; Adjusted operating income +11.6% YoY to $1.31B; Rx volume +4.3% and same-store prescription volume +6.7% .

What Went Wrong

  • ACA individual exchange losses: Recorded $448M PDR for 2025 (mostly health care costs), driving a 130 bps headwind to MBR; CVS will exit Aetna-operated ACA plans in 2026 .
  • Legal and portfolio cleanup costs: $387M Omnicare litigation charge and $247M loss on wind down/sale of Accountable Care assets impacted GAAP results .
  • Front-store softness and vaccine uncertainty: PCW cited softening consumer demand in the front store; management flagged potential variability in immunization demand later this year .

Financial Results

Consolidated Results vs Prior Periods and Estimates

MetricQ3 2024Q4 2024Q1 2025Q1 2025 Consensus*
Revenue ($B)$95.43 $97.71 $94.59 $93.56*
Operating Income ($B)$0.83 $2.37 $3.37 —
Adjusted Operating Income ($B)$2.55 $2.73 $4.58 —
Diluted EPS ($)$0.07 $1.30 $1.41 —
Adjusted EPS ($)$1.09 $1.19 $2.25 $1.67*
Effective Tax Rate (%)32.4% 23.7% 31.9% —
  • Q1 revenue and Adjusted EPS were above S&P Global consensus; EPS beat was significant given HCB outperformance and reserve development . Consensus values marked with an asterisk are from S&P Global.*

Segment Revenues ($B)

SegmentQ3 2024Q4 2024Q1 2025
Health Care Benefits$33.00 $32.96 $34.81
Health Services$44.13 $47.02 $43.46
Pharmacy & Consumer Wellness$32.42 $33.51 $31.91

Segment Adjusted Operating Income ($B)

SegmentQ3 2024Q4 2024Q1 2025
Health Care Benefits$(0.92) $(0.44) $1.99
Health Services$2.20 $1.76 $1.60
Pharmacy & Consumer Wellness$1.60 $1.76 $1.31

KPIs and Margins

KPIQ3 2024Q4 2024Q1 2025
HCB MBR (%)95.2% 94.8% 87.3%
HCB Medical Membership (M)27.1 27.1 27.1
HS Pharmacy Claims Processed (M)484.1 499.4 464.2
HS Gross Margin (%)6.4% 5.7% 5.3%
PCW Prescriptions Filled (M)431.6 445.9 435.5
PCW Gross Margin (%)19.7% 20.3% 19.1%
Same-Store Rx Volume Growth (%)9.1% 5.9% 6.7%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
GAAP Diluted EPSFY 2025$4.58–$4.83 $4.23–$4.43 Lowered
Adjusted EPSFY 2025$5.75–$6.00 $6.00–$6.20 Raised
Cash From OperationsFY 2025~$6.5B ~$7.0B Raised
HCB Adjusted Operating IncomeFY 2025 (low-end)n/a~$1.91B New detail
HCB MBRFY 2025 (low-end)n/a~91.3% New detail
Interest ExpenseFY 2025n/a~$3.15B New detail
Adjusted Effective Tax RateFY 2025n/a~25.9% New detail
Earnings CadenceFY 2025n/a~60% of EPS in 1H New detail

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024 and Q4 2024)Current Period (Q1 2025)Trend
Medicare Advantage trends and reservesElevated utilization; ~$1.1B PDR in Q3; HCB AOI under pressure; MBR up sharply . Q4 HCB adjusted loss and high MBR persisted .Early stabilization; HCB outperformance with favorable prior-year development; MBR improved to 87.3% .Improving but cautious
ACA individual exchangeGrowth but losses; PDR recorded in Q3 .$448M PDR in Q1; decision to exit Aetna-operated ACA plans in 2026 .Strategic exit
PBM purchasing economics and client pricingHS AOI up on purchasing economics despite large client loss and price improvements .HS AOI +17.6% YoY; continued client price pressure but improved mix and purchasing economics .Execution offsetting pricing headwinds
Retail pharmacy and consumerPCW AOI supported by volume and vaccines; front-store pressure . Q4 front-store volume down .PCW AOI +11.6% YoY, same-store Rx +6.7%; noted front-store softness and vaccine demand uncertainty .Solid scripts; cautious on consumer/vaccines
GLP‑1 strategyCordavis/biosimilars impact previously highlighted .Prefer Wegovy starting July 1, 2025; integrated CVS Weight Management wraps to enhance outcomes; CVS first retail in NovoCare network .Access/affordability push accelerating
Regulatory/policyRestructuring, star ratings context .Arkansas legislation concerns; potential access/cost impacts; CVS advocating broader supply chain reforms .Heightened policy engagement
Prior authorization simplificationn/aAetna bundling approvals in oncology; expanding to MSK and cardiology later in 2025 .Customer experience improvement

Management Commentary

  • Strategic message: “We are progressing on our aspiration to be America’s most trusted health care company… our increased guidance reflects solid performance and execution across each of our businesses as we maintain a prudent outlook” — CEO David Joyner .
  • GLP‑1 access initiative: “Partnering with Novo Nordisk to significantly increase access to Wegovy… we can increase the power of GLP‑1s by combining them with additional lifestyle clinical support as part of our CVS weight management program” .
  • Portfolio focus: “We plan to exit our individual exchange business in 2026… focus on areas where we have a clear right to win” .
  • HCB trend posture: “Medical cost trends… remained elevated but appeared to show early signs of stabilization” — CFO Tom Cowhey .
  • Retail execution and model transformation: “We’re the best run national pharmacy… moved 100% of our commercial scripts into cost-based model; working to move remaining scripts” — Prem Shah .

Q&A Highlights

  • Medicare trend and reserve dynamics: Favorable PYD (largely 4Q24 dates of service) net of revenue estimate changes contributed ~$400M to Q1 AOI; underlying Medicare trends consistent with or slightly better than outlook; group MA remains pressured .
  • Wegovy formulary strategy economics: CVS will prefer Wegovy on its largest commercial template with “tens of millions of lives,” pairing with weight management services; savings accrue to clients and members; move does not change FY25 guidance .
  • ACA exit and 2026 earnings bridge: Expect elimination of ~$350–$400M variable loss after exiting Aetna-operated ACA states; fixed cost reallocation TBD .
  • Oak Street medical cost pressure: Early signs of pressure in 1Q; overall healthcare delivery “in line” with strong patient growth; monitoring trends closely .
  • Vaccines/consumer: Monitoring potential protocol changes and sentiment around COVID vaccines; PCW prepared operationally; front-store environment is soft .

Estimates Context

  • Q1 2025: Revenue $94.6B vs $93.6B consensus*; Adjusted EPS $2.25 vs $1.67 consensus*; EBITDA ~$4.45B vs ~$4.29B consensus* — a broad beat, led by HCB AOI and favorable reserve development .*
  • Prior quarters: Q4 2024 beat on EPS ($1.19 vs $0.92*) and revenue ($97.7B vs $96.9B*); Q3 2024 missed on EPS ($1.09 vs $1.45*) but beat revenue ($95.4B vs $92.7B*) as HCB was pressured by PDRs .*
MetricQ3 2024 ActualQ3 2024 Consensus*Q4 2024 ActualQ4 2024 Consensus*Q1 2025 ActualQ1 2025 Consensus*
EPS ($)$1.09 $1.45*$1.19 $0.92*$2.25 $1.67*
Revenue ($B)$95.43 $92.69*$97.71 $96.88*$94.59 $93.56*
EBITDA ($B)~$2.67*~$3.80*~$3.04*~$2.92*~$4.45*~$4.29*

Values marked with an asterisk (*) are retrieved from S&P Global.

Key Takeaways for Investors

  • HCB re-rating underway: meaningful AOI inflection and MBR improvement, with early signs of trend stabilization; reserve development provides cushion but management remains prudent for 2H .
  • Guidance quality improved: Raised Adjusted EPS and CFO despite lowering GAAP EPS (legal/portfolio charges) — focus on underlying earnings power and cash generation .
  • Strategic portfolio clean-up reduces tail risk: 2026 ACA exit should remove $350–$400M variable losses; watch fixed cost reallocation into 2026 .
  • GLP‑1 catalyst: Wegovy formulary preference and CVS Weight Management integration should enhance Caremark value proposition and drive traffic to retail; impact excluded from 2025 guidance (potential upside lever) .
  • PBM economics resilient: HS AOI +17.6% YoY on purchasing economics despite client price pressure — supports multi-segment durability .
  • PCW execution consistent, but vaccines a swing factor: strong scripts and share (~27.6%) offset by front-store softness; vaccine demand/CDC protocols could drive volatility in back half .
  • Near-term trading setup: Q1 beat and raised Adjusted EPS/CFO guide vs continued macro/MA caution; consensus for Q2 pharmacy services may sit above internal expectations — mind intra-quarter estimate risk .

Notes:

  • All company figures and qualitative commentary are sourced from CVS’s Q1 2025 8‑K/press release and earnings call transcript . Prior-quarter figures referenced from Q3 2024 and Q4 2024 8‑Ks .
  • Consensus estimates denoted with an asterisk (*) are retrieved from S&P Global.