CVS Health Corp. beat estimates for second-quarter profit and sales, a sign of strength as the drugstore chain cuts staff to reduce costs and focuses on broadening its health-care offerings.
Adjusted earnings for the quarter were $2.21 a share, according to a statement Wednesday, beating the $2.10 average estimate of analysts surveyed by Bloomberg. Revenue rose 10% from a year ago to $88.9 billion, also exceeding estimates. The company maintained its annual adjusted profit forecast of $8.50 to $8.70 a share.
CVS has been taking steps to move away from its retail roots and expand further into other dimensions of health care, in part with the recent acquisitions of home health-care provider Signify Health Inc. and primary care company Oak Street Health Inc. The company said Tuesday that it would cut 5,000 jobs from its workforce as part of an initiative to re-prioritize investments around care delivery and technology.
The shares rose 1.9% before US markets opened, after losing 21% this year through Tuesday’s close.
CVS created a restructuring plan during the second quarter intended to streamline and simplify the business and reduce costs, according to the statement, and recorded a $496 million pre-tax charge for the program.
While sales in the pharmacy and consumer wellness segment beat estimates at $28.8 billion in the quarter, operating income fell 17%, reflecting pressure on drug reimbursements, lower front-of-store sales and falling demand for Covid-19 tests and vaccines, CVS said. Revenue in the health-services segment, the company’s largest, rose to $46.2 billion, also exceeding Wall Street views.
Operating income in the Aetna health insurance unit decreased 20%, although sales beat estimates. The medical benefit ratio, a measure of how much premium revenue is spent on patients’ care, was 86.2%, while analysts had predicted 84.6%.
The higher costs for medical care will likely be a line of questioning for analysts on the company’s earnings call, Evercore ISI analysts led by Elizabeth Anderson said in a note.
Shares of rival health insurer Humana Inc. rose 2.9% in trading before US markets opened after it reported adjusted profit above analysts’ expectations. The company, which focuses on private Medicare plans for seniors, said the use of medical care was stabilizing “based on most recent claims activity.” Humana had warned in June of rising medical expenses tied to emergency visits, surgeries and dental care.
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