Key Takeaways:
CVS Health Corp. (NYSE:CVS) raised its full-year earnings forecast after first-quarter profit and revenue topped analyst estimates, driven by improved cost controls at its Aetna insurance unit and a more profitable drug mix in its pharmacy benefit business.
"We're improving our capability of forecasting, so the cost trend did not surprise me," Chief Financial Officer Brian Newman said in an interview with Reuters.
The healthcare conglomerate reported a first-quarter adjusted profit of $2.57 per share on revenue of $100.4 billion, beating consensus estimates of $2.20 and $95.1 billion, respectively. The company's Aetna insurance business reported a medical loss ratio of 84.6 percent, below analysts' estimates of 87.58 percent, indicating better-than-expected control over medical expenses.
Shares rose nearly 6 percent in pre-market trading following the announcement. The strong results from Aetna contrast with rivals like UnitedHealth and Humana, which have recently detailed rising medical costs within the government-sponsored Medicare Advantage program.
CVS's health services segment, which includes its Caremark pharmacy benefit manager, posted an 11 percent increase in revenue. Newman attributed the gains to a more profitable mix of drugs dispensed. The health benefits business, which includes Aetna, saw revenue climb 3 percent.
However, the company's retail pharmacy business faced headwinds. Operating income for the unit fell 8.8 percent compared to the prior year's first quarter. CVS attributed the decline to regulatory changes impacting drug prices, a weaker cold and flu season, and weather-related store closures.
The guidance increase signals management's growing confidence in managing medical expenses, a key concern for investors in the health insurance sector. Investors will watch for continued margin stability in the company's next quarterly report to see if the trend holds.
This article is for informational purposes only and does not constitute investment advice.
