Shares of CVS Health (CVS -0.16%) fell as much as 7% early Wednesday before recovering to trade down around 1% as of 2 p.m. ET. The move came after the company lowered its full-year guidance despite posting solid third-quarter results.
CVS’ third-quarter revenue grew 10.6% year over year, to $89.76 billion, translating to net income under generally accepted accounting principles (GAAP) of $1.75 per share and non-GAAP (adjusted) earnings of $2.21 per share (up from adjusted net income of $2.17 per share in the same year-ago period). Analysts, on average, were only expecting adjusted earnings of $2.13 per share on revenue of $88.17 billion.
A “positive” quarter for CVS despite today’s challenging environment
The company credited its relative earnings outperformance during the quarter to its health services segment; health services revenue grew 8.4% to $46.9 million, and adjusted operating income rose 10.8% to $1.88 billion, thanks largely to improved purchasing economics from the company’s group purchasing organization. Meanwhile, the company’s healthcare benefits segment saw adjusted operating income decline 6.4% to $1.54 billion even as revenue rose 16.9%, to $26.3 billion. And finally, the company’s flagship pharmacy and consumer wellness business saw adjusted operating income decline slightly (to $1.39 billion) despite 6% revenue growth (to $28.87 billion).
CEO Karen Lynch called it “another quarter of positive results” in spite of the current challenging macroeconomic environment.
Why CVS just lowered its outlook
For the full year 2023, CVS lowered its outlook for GAAP earnings per share to be in the range of $6.37 to $6.61, down from $6.53 to $6.75 previously. In its earnings press release, the company reiterated its previous guidance ranges for adjusted earnings per share in the range of $8.50 to $8.70, and for cash flow from operations of $12.5 billion to $13.5 billion.
During the subsequent conference call, management clarified that CVS anticipates cash flow for the year will arrive near the upper end of that guidance range — which helps partly explain the rebound from today’s earlier lows. CVS also elaborated that adjusted earnings will likely arrive near the lower end of that reiterated guidance range. The change was driven by uncertainty created by recent elevated utilization trends within CVS’ Medicare Advantage business, as well as lower-than-expected script volume within its pharmacy and consumer wellness segment.
Given the forward-looking market, it obviously doesn’t bode well to see any company modestly reducing its full-year outlook even after posting stronger-than-expected quarterly results. So while there were no big negative surprises this quarter for CVS, it’s hardly surprising to see the stock pulling back in response today.