Sign in
CH

CVS HEALTH Corp (CVS)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $97.7B (+4.2% y/y), GAAP diluted EPS $1.30 and Adjusted EPS $1.19; strength in Pharmacy & Consumer Wellness offset weakness in Health Care Benefits (Aetna) where utilization and lower 2024 Star ratings weighed on results .
  • Health Care Benefits posted an adjusted operating loss of $439M and MBR rose 630 bps to 94.8%, driven by higher utilization and Medicaid acuity, partially offset by release of Q3 PDR and favorable prior-period development .
  • 2025 guidance: Adjusted EPS $5.75–$6.00; CFO detailed segment-level outlook (HCB AOI ≥$1.5B with MBR ~91.5%, Health Services AOI ~$7.54B, PCW AOI ~$5.48B) and cash from operations ~$6.5B; earnings cadence expected 55/45 1H/2H .
  • Strategic priorities emphasize Aetna margin recovery, transparent pricing models (Caremark TrueCost, CVS CostVantage), and biosimilar adoption (90% HUMIRA conversion; ~$1B client savings), positioning for medium-term margin normalization .
  • Wall Street consensus comparisons unavailable due to S&P Global data limits; no formal beat/miss assessment in this recap (consensus data unavailable).

What Went Well and What Went Wrong

  • What Went Well

    • Pharmacy & Consumer Wellness revenue grew 7.5% y/y to $33.5B; same-store pharmacy sales +13% and prescription volumes +5.9%, supported by improved drug purchasing and vaccination contributions .
    • Health Services delivered adjusted operating income of ~$1.76B; purchasing economics and Signify volume helped offset PBM pricing headwinds; Signify completed >3M in-home evaluations; Oak Street revenue +39% y/y with at-risk members +35% .
    • Management advanced pricing transparency: Caremark TrueCost and CVS CostVantage (100% of commercial scripts under CostVantage as of Jan 1) to stabilize pharmacy margins and pass rebates to patients .

  • What Went Wrong

    • Health Care Benefits (Aetna) incurred an adjusted operating loss of $439M and MBR 94.8% (+630 bps y/y) due to elevated utilization, lower MA Star ratings, and Medicaid acuity despite PDR release; HCB AOI collapsed from $5.6B in 2023 to $0.3B in 2024 .
    • Health Services revenue declined 4.3% y/y (Q4) and 7.1% for FY 2024 on loss of a large client and continued price improvements for PBM customers; pharmacy claims processed fell ~17% y/y .
    • Front-store softness and reimbursement pressure compressed PCW adjusted operating income (-13.3% y/y in Q4); gross margin down to 20.3% (vs 22.6% LY) .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Total Revenues ($B)$93.8 $95.4 $97.7
Operating Income ($B)$3.37 $0.83 $2.37
Adjusted Operating Income ($B)$4.23 $2.55 $2.73
GAAP Diluted EPS ($)$1.58 $0.07 $1.30
Adjusted EPS ($)$2.12 $1.09 $1.19
Versus EstimatesN/A (SPGI unavailable)N/A (SPGI unavailable)N/A (SPGI unavailable)

Segment breakdown (Adjusted Operating Income and Revenues):

SegmentQ4 2023 Revenues ($B)Q4 2023 Adj. OI ($B)Q4 2024 Revenues ($B)Q4 2024 Adj. OI ($B)
Health Care Benefits$26.7 $0.68 $33.0 $(0.44)
Health Services$49.1 $1.86 $47.0 $1.76
Pharmacy & Consumer Wellness$31.2 $2.03 $33.5 $1.76
Intersegment Eliminations$(13.3) —$(15.9) —

Key KPIs:

KPIQ4 2023Q3 2024Q4 2024
HCB Medical Benefit Ratio (MBR)88.5% 95.2% 94.8%
HCB Medical Membership (mm)25.7 27.1 27.1
Health Services Pharmacy Claims (mm, 30-day equiv)600.8 484.1 499.4
PCW Prescriptions Filled (mm, 30-day equiv)431.5 431.6 445.9
PCW Same-Store Pharmacy Rx Volume (y/y)+4.4% +9.1% +5.9%
Health Services Gross Margin5.2% 6.4% 5.7%
PCW Gross Margin22.6% 19.7% 20.3%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
GAAP Diluted EPSFY 2025—$4.58–$4.83 New
Adjusted EPSFY 2025—$5.75–$6.00 New
Cash Flow from OperationsFY 2025—~$6.5B New
Health Care Benefits RevenueFY 2025—~$132B New
Health Care Benefits MBRFY 2025—~91.5% (improve ~100 bps y/y) New
Health Care Benefits Adjusted Operating IncomeFY 2025—≥$1.5B New
Health Services RevenueFY 2025—~$185B New
Health Services Adjusted Operating IncomeFY 2025—~$7.54B (+~4%) New
PCW RevenueFY 2025—~$134B New
PCW Adjusted Operating IncomeFY 2025—~$5.48B (≈–5%) New
Interest ExpenseFY 2025—+~$300M y/y New
Tax RateFY 2025—~25.5% New
Diluted SharesFY 2025—~1.271B; no buybacks contemplated New
Earnings CadenceFY 2025—~55% 1H / 45% 2H New
Medicare Advantage MembershipFY 2025 exit—Down high-single-digit % vs YE 2024 New
Individual Exchange MembershipFY 2025—Down >800k lives (sub-1mm) New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Aetna/MA margin recoveryUtilization pressure; lowered FY24 guidance; MBR up; leadership changes in HCB PDR ~$1.1B for Q4 losses; MBR 95.2%; restructuring plan finalized Plan to shrink MA membership HSD%; target 3–5% margins over time; 2025 MBR ~91.5% Stabilizing; gradual improvement expected
Transparent pricing (TrueCost, CostVantage)Strategy emphasis; transparency models introduced Continued execution; PBM price improvements impacting revenue 100% commercial scripts under CostVantage; TrueCost adoption >75% elements; Medicare/Medicaid expansion planned Broadening adoption
Biosimilars (HUMIRA)N/AN/A>90% eligible conversions; ~$1B client savings; $0 copay for consumers Strong traction
Health Services client loss impactRevenue decline from large client loss Continued headwind; claims down 16.5% Revenue down 4.3% y/y; claims down 16.9%; AOI resilient via purchasing and Signify Headwinds persist; mitigation via mix/purchasing
Medicaid acuity/redeterminationsHigher acuity; MBR impact DCP 44.6 days; acuity drivers noted Rate advocacy: ~4.5% increase on ~40% of book; further renewals less robust Rates catching up gradually
Retail footprint optimizationN/AStore impairment charges; 3-year closure plan completion Further footprint optimization in 2025; retail script share >27% Ongoing optimization

Management Commentary

  • “Our integrated model allows us to uniquely deliver a simpler, connected experience… We will be positioned for strong performance in 2025 as we deliver simply better care” — David Joyner, President & CEO .
  • “We expect… meaningful recovery in our Aetna business particularly in Medicare Advantage, as well as continued growth in Health Services” .
  • “PBMs like Caremark… remain the only part of the drug supply chain entirely focused on lowering cost… we converted more than 90% of eligible HUMIRA patients to a biosimilar… generated almost $1 billion of savings for our clients” .
  • “We are establishing our initial full year 2025 guidance for adjusted EPS in the range of $5.75 to $6… Health Care Benefits adjusted operating income of at least $1.5 billion… every point of trend is worth approximately $800 million” — CFO Tom Cowhey .
  • Note: A discrepancy appeared across call transcripts regarding Health Services AOI y/y; the corrected transcript and press release both indicate a ~5% y/y decline in Q4 AOI for Health Services, clarifying prior wording on the call .

Q&A Highlights

  • Confidence and priorities under new CEO: Focus on stabilizing Aetna operations, executing pharmacy transformation (CostVantage/TrueCost), and biosimilars; leadership bench strengthened (new roles across Aetna, Pharmacy, Caremark) .
  • Medicare Advantage trends: 2024 ended with MA margins ~–4.5% to –5%; 2025 still loss-making but improving; benefit design changes aim to alleviate supplemental benefits costs; watch inpatient moderation and mix shifts .
  • Individual Exchange actions: Price discipline and footprint rightsizing; membership expected to fall to sub-1mm (from ~1.85mm), improving margins but not breakeven in 2025 .
  • MBR seasonality under IRA Part D changes: Expect lowest MBR in Q1 and highest in Q4 with 1H/2H earnings split ~55/45; PDR timing in 2024 alters cadence versus prior years .
  • Medicaid rate updates: ~4.5% increase on ~40% of book in January; further renewals expected later in 2025 but likely less robust; continued advocacy for actuarial soundness .

Estimates Context

  • Wall Street consensus estimates from S&P Global were unavailable at the time of analysis due to daily request limits. As a result, we cannot assess formal EPS or revenue beats/misses versus consensus for Q4 2024 in this recap (consensus data unavailable).

Key Takeaways for Investors

  • Pharmacy & Consumer Wellness remains a growth engine with strong script trends and improving purchasing but reimbursement pressure persists; CostVantage rollout should stabilize margins over time .
  • Aetna is the swing factor for 2025: management targets MBR improvement (~100 bps) and AOI ≥$1.5B; every point of medical trend has ~$800M AOI impact—monitor utilization, supplemental benefits, and rate advocacy outcomes closely .
  • PBM headwinds (client loss, price improvements) weigh on Health Services revenue, yet AOI resilience via mix and purchasing economics plus Signify/Oak Street volumes offers support; upside as rate/bid environment normalizes (more likely from 2026) .
  • Cash generation normalizes to ~$6.5B in 2025 given timing pull-forward in 2024; leverage reduction remains a focus alongside dividend maintenance; expect no buybacks in 2025 .
  • Near-term trading: Stock likely sensitive to monthly utilization data and MA membership/mix updates; medium-term thesis hinges on Aetna margin recovery, transparent pricing adoption, and biosimilar expansion .
  • Watch for CMS rate notices and supplemental benefit dynamics impacting MA profitability trajectory in 2025; management is actively advocating for rates reflecting industry-wide cost trends .
  • Note discrepancies carefully: rely on press release and corrected transcript for Health Services AOI y/y; management emphasized transparency and achievable guidance to build credibility .

Citations: Press release and 8-K (Q4 2024): ; Earnings call transcript (Q4 2024): ; Corrected call transcript: ; Prior quarters for trend: Q3 2024 8-K ; Q2 2024 8-K .