CVS HEALTH Corp Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Appointments: Announced Brian Newman as Chief Financial Officer effective May 12 and Amy Compton-Phillips as Chief Medical Officer effective May 19.
• Financial Performance: Delivered first quarter adjusted earnings per share of $2.25 and adjusted operating income of $4.6 billion. Increased full-year 2025 adjusted EPS guidance to a range of $6 to $6.20, up from the previous range of $5.75 to $6.
• Pharmacy Initiatives: Focused on simplifying prior authorization, including launching a novel approach to bundle multiple prior authorization requests in areas like cancer care. Partnered with Novo Nordisk to increase access to Wegovy at a more affordable price.
• Exit Plans: Plan to exit the individual exchange business in 2026, with projected variable losses of $350 million to $400 million for full-year 2025.
• Healthcare Delivery: Oak Street Health saw patient growth but early signs of pressure in medical cost trends; health services segment had strong performance with some segments like Medicaid and commercial business performing well.

Segment Performance

• Healthcare benefits: Generated nearly $35 billion in revenue in the quarter, up 8% year-over-year. Adjusted operating income was approximately $2 billion, a more than $1.2 billion increase from the prior year quarter. Medical benefit ratio was 87.3%, down 310 basis points from the prior year. Plans to exit individual exchange business in 2026 with projected variable losses of $350 million to $400 million for full-year 2025.
• Health services: Generated over $43 billion in revenue during the quarter, up nearly 8% year-over-year. Adjusted operating income of over $1.6 billion increased nearly 18% from the prior year quarter.
• Pharmacy and consumer wellness: Generated revenues of nearly $32 billion, an increase of over 11% versus the prior year quarter and over 14% on a same-store basis. Adjusted operating income of over $1.3 billion increased over 11% from the prior year quarter. Retail pharmacy script share in the quarter grew to approximately 27.6%, an increase of approximately 70 basis points from the same period last year.

Guidance

• Increased full-year 2025 adjusted EPS guidance to a range of $6 to $6.20.
• Projected total revenue of $382.6 billion, down approximately $3.3 billion due to exits like the ACO REACH program and sale of MSSP business.
• Anticipates consolidated adjusted operating income to be in the range of $13.31 billion to $13.65 billion.
• Expects full-year cash flow from operations to be approximately $7 billion. Also updated interest expense expectation to ~$3.15 billion and adjusted effective tax rate to ~25.9%.

Risks

• Arkansas Legislation: Unjustified action by Arkansas government risking access to critical drugs for hundreds of thousands of patients, increasing costs for employers and consumers, and affecting vulnerable patients with complex conditions.
• Medical Cost Trends: Elevated medical cost trends, particularly in Medicare Advantage group business, with in-patient, outpatient, and medical pharmacy trends remaining high.
• Macro Factors: Potential impact of tariffs on the front store and pharma supply chain, as well as consumer sentiment changes affecting vaccine market demand.

Question and Answer

Q: Good morning. Wanted to focus on your comments around Medicare Advantage specifically. It sounds like you’re seeing early trends better in individual and Part D, maybe some pressure incrementally in Group A, so hoping you can give us some more color there across those three segments, and also maybe give us your early impression of trend versus that high single digit medical trend you put in guidance for MA.

A: Justin, this is David. Thanks for the question. We expected there will be questions around the trend, and before I hand it off to the team to talk more specifically about the drivers and how we’re thinking about the rest of this year, I want to just take a moment talking about what we’ve done in the last six months. We’ve talked a lot about creating operating stability, improving the way in which we’re forecasting and pricing our products, and then we had to have a good open enrollment, so I think we have executed against all three of those priorities and I feel really good about the team, the focus and the execution that’s in front of us. I think that has allowed us, again, to drive the kind of performance that we’ve seen in this first quarter. I will also say that we will continue to hold a respect for trend, and I think that will be the theme you’ll hear today as we look at both the performance in Q1 and also the elevated trend as we expect for the rest of this year. With that, I’ll let Steve Nelson give a broader framework on Medicare and the other businesses within Aetna, and then I’ll let Tom speak to the specific trends.

Q: Hi, thanks very much, and good morning. I wanted to shift over to the relationship that you announced today with Novo for Wegovy. David, can you help me to understand a few things? One, when we think about your preferred formulary, can you talk about the number of lives that are on there? Two, when we think about coverage, I know we’ve been talking the last two years around how expensive this is for employers to cover. Where are we on coverage today for weight loss, and will this increase the number of potential lives that could be covered with this program? Then just wrapping that around, you talked about clinical services, and this will come through Caremark. Can you maybe just talk about the economic value of this for both Caremark, as well as the member? Then just lastly, when I think about the pricing, should I assume what you’ve been able to negotiate through Caremark is going to be better than the 499 that you also announced at retail?

A: Yes Lisa, thank you, and really good questions, thoughtful questions on the new relationship. I’m going to turn it over to Prem, but before I do, I just want to say, we continue to be a leader and innovate in the areas that our customers care most about, and we’ve known that we’ve had cost pressures in this category, they’ve been asking for solutions, and I couldn’t be happier about what we announced today. I’ll have Prem walk through the relationship and then answer specifically the questions that you’ve asked.