CVS Health incurred a $1.12 million net income loss in Q2 due to $168 million in acquisition expenses for Signify and Oak Street Health, alongside real estate costs and a $500 million restructuring charge. CEO Karen Lynch announced 5,000 layoffs in non-customer roles. Successes included Signify and Oak Street Health acquisitions, expanding offerings to 12 states, and $1 billion operating cash flow. Q3’s $4.5 billion income will manage Medicare Advantage challenges. Higher Medicare Advantage usage, Aetna’s outpatient care, and acquisitions affect 2024 earnings, projected at $8.50-$8.70/share. Restructuring for efficiency aims at $700-$800 million cost savings in 2024.
CVS Health reported a net income loss of $1.12 million in the second quarter, driven by $168 million in acquisition costs for Signify and Oak Street Health, real estate expenses and a restructuring charge of $500 million.
CEO Karen Lynch announced the layoff of 5,000 positions in non-customer facing roles, during the earnings call Tuesday morning.
Lynch outlined Q2 successes in the acquisition of Signify Health and Oak Street Health, the expansion of exchange offerings to 12 states and the generation of $1 billion in operating cash flow.
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Third-quarter operating income of $4.5 billion will allow CVS to manage emerging headwinds in Medicare Advantage, she said.
This is a reflection of higher Medicare Advantage utilization in 2023 and greater-than-expected use in outpatient settings for its insurer, Aetna. The medical benefit ratio is expected to remain at the high end, with cost trends remaining elevated through 2023, the company said.
Higher Medicare Advantage cost trends for 2023, combined with lower consumer spending expectations, higher drug utilization, and the Signify and Oak Street acquisitions are lowering earnings per share projections for 2024 from $9 to a range of $8.50 to $8.70, said CFO Shawn M. Guertin. More information will be released at Investor Day in Boston in December, he said.
On the consumer side, Lynch said customer pull-back was driven by economic volatility.
In its earnings statement, CVS said that during the second quarter of 2023 the company developed an enterprise-wide restructuring plan intended to streamline and simplify the organization, improve efficiency and reduce costs.
In connection with the restructuring plan, during the three months ended June 30 the company recorded a $496 million pre-tax restructuring charge.
The restructuring program is expected to be substantially completed by the end of 2023, CVS said. The company expects $700 to $800 million in cost savings in 2024.
Both Signify and Oak Street had strong quarters, CVS said. CVS expects to build 50 to 60 Oak Street clinics next year.
CVS completed the $10.6 billion acquisition of Oak Street Health in May and the $8 billion acquisition of home-health company Signify Health in March.
Source: HealthcareFinancenews