Illustration shows CVS Health logo

CVS Health logo is seen displayed in this illustration taken, May 3, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

Aug 2 (Reuters) – CVS Health Corp (CVS.N) on Wednesday said it began cutting jobs and had shut its clinical trials services as part of a plan to rein in costs as the company gears up for a tough environment for its health insurance business next year.

CVS also trimmed its 2024 profit forecast to $8.50 to $8.70 per share from its prior view of about $9, and withdrew its 2025 adjusted earnings forecast of $10 per share.

CFO Shawn Guertin said the cut reflects “the more challenging outlook for 2024 and our desire to set guidance that is achievable.”

The company, which includes one of the largest U.S. pharmacy benefit managers and the Aetna health insurer along with its chain of retail pharmacies, bought primary-care provider Oak Street Health and home healthcare services firm Signify Health in the past few months as it aims to play a greater role in patient care.

High integration costs from the deals, as well as increasing medical costs due to higher demand for elective surgeries, are expected to pressure its earnings this year and the next. Health insurers are also expected to receive lower payouts for government-backed Medicare Advantage plans for Americans aged 65 and older.

Despite those challenges and the forecast adjustment, CVS shares, which have fallen nearly 18% this year, were up 3% at $76.25.

“I figured the market would focus on the weaker guidance for 2024 and 2025, which is another example of CVS disappointing investors. But perhaps the shares are just too cheap to ignore at these prices,” said Morningstar analyst Julie Utterback.

CVS recorded a $496 million restructuring charge during the quarter and said it would eliminate 5,000 non-customer-facing jobs. It expects those efforts to help it achieve cost savings of $700 million to $800 million through next year.

The company maintained its 2023 adjusted profit forecast at $8.50 to $8.70 per share, but said it expects its medical benefit ratio — the percentage of claims paid to premiums collected — to come in at the higher end of its outlook of 84.7% plus or minus 50 basis points.

“Our 2023 guidance now prudently assumes that these medical cost trends will remain elevated for the rest of 2023,” Guertin said, echoing similar concerns cited by rivals UnitedHealth Group (UNH.N) and Elevance Inc (ELV.N).

CVS reported a second-quarter profit of $2.21 per share, 10 cents above analysts’ average estimates, according to Refinitiv data.

Reporting by Khushi Mandowara and Bhanvi Satija in Bengaluru; Editing by Vinay Dwivedi and Bill Berkrot

Our Standards: The Thomson Reuters Trust Principles.

Bhanvi Satija reports on pharmaceutical companies and the healthcare industry in the United States. She has a postgraduate degree in International Journalism from City, University of London.


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