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    CVS
    Earnings call· Mar 2025(Q1 FY25)

    CVS HEALTH Q1 FY25 earnings call CVS

    May 1, 2025 Source

    Executive summary

    CVS Health Q1 FY25 — Strong Start and Raised FY25 EPS Guidance

    CVS Health delivered a strong Q1 FY25, exceeding expectations across segments and raising full-year adjusted EPS guidance. The company is actively managing its portfolio, including exiting the individual ACA exchange market in 2026 due to underperformance, to focus on areas with stronger competitive advantage. Innovation in pharmacy services, such as the new Wegovy partnership and CostVantage model, aims to drive affordability and access, while the company remains cautious on elevated medical cost trends and potential tariff impacts.

    Highlights

    5

    • Delivered first quarter adjusted EPS of $2.25.

    • Achieved first quarter adjusted operating income of $4.6 billion.

    • Increased full year 2025 adjusted EPS guidance to a range of $6.00-$6.20, up from the previous range of $5.75-$6.00.

    • Generated Q1 revenues of nearly $95 billion, an increase of 7% over the prior year.

    • Health Care Benefits adjusted operating income increased over $1.2 billion from the prior year quarter, with a medical benefit ratio of 87.3%, down 310 bps YoY.

    Concerns

    5

    • Projecting variable losses in the individual exchange business of $350 million to $400 million for the full year 2025, leading to an exit from this market in 2026.

    • Established a premium deficiency reserve of approximately $450 million related to 2025 individual exchange coverage, increasing the Q1 MBR by 130 basis points.

    • Medical cost trends remained elevated, particularly in Medicare (inpatient, outpatient, medical pharmacy) and Group Medicare Advantage.

    • Oak Street Health showed early signs of pressure in first quarter medical cost trends.

    • Arkansas legislation is expected to leave hundreds of thousands of patients without community pharmacies, limit access to critical drugs, and increase costs for consumers.

    Guidance & targets

    12
    CategoryTargetConfidence
    Full year 2025 Adjusted EPS
    $6.00 to $6.20
    high materiality
    High
    Full year 2025 Total Revenue
    $382.6 billion
    medium materiality
    Medium
    Full year 2025 Health Care Benefits Adjusted Operating Income
    approximately $1.91 billion
    medium materiality
    Medium
    Full year 2025 Medical Benefit Ratio (Health Care Benefits)
    approximately 91.3%
    medium materiality
    Medium
    Full year 2025 Total Medical Membership
    approximately 26.4 million members
    medium materiality
    Medium
    Full year 2025 Medicare Advantage Membership Growth
    down 5% to 10%
    medium materiality
    Medium
    Full year 2025 Consolidated Adjusted Operating Income
    $13.31 billion to $13.65 billion
    high materiality
    Medium
    Full year 2025 Cash Flow from Operations
    approximately $7 billion
    medium materiality
    Medium
    Full year 2025 Interest Expense
    approximately $3.15 billion
    low materiality
    Medium
    Full year 2025 Adjusted Effective Tax Rate
    approximately 25.9%
    low materiality
    Medium
    Full year 2025 Consolidated Earnings Cadence
    approximately 60% in the first half of the year
    low materiality
    Medium
    Full year 2025 Individual Exchange Business Variable Losses
    $350 million to $400 million
    high materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Health Care Benefits
    Revenue growth driven by increases in the Medicare business, including the impact of improved Medicare Advantage Star Ratings for payment year 2025. Medical membership was flat sequentially, with declines in individual exchange and Medicare largely offset by growth in commercial fee-based business. Adjusted operating income increased over $1.2 billion YoY. MBR decreased 310 bps YoY, primarily due to favorable prior year reserve development across all lines of business, net of changes in revenue estimates, contributing $400 million to AOI. A premium deficiency reserve of $450 million related to 2025 individual exchange coverage increased the MBR by 130 bps. Medical cost trends remained elevated but showed early signs of stabilization.
    Medical membership: approximately 27.1 millionMedical benefit ratio: 87.3%Days claims payable: approximately 43 days
    		$35 billion8%—adjusted operating income of approximately $2 billion
    Health Services
    Revenue growth primarily driven by pharmacy drug mix, growth in specialty, and brand inflation, partially offset by continued pharmacy client price improvements. Adjusted operating income increased nearly 18% from the prior year quarter, primarily driven by improved purchasing economics and pharmacy drug mix, partially offset by continued pharmacy client price improvements.
    Total pharmacy claims processed: over $464 millionTotal pharmacy services membership: approximately $88 million
    		over $43 billionnearly 8%—adjusted operating income of over $1.6 billion
    Health Care Delivery
    Revenue growth excludes the impact of the exit from the ACO REACH program and the sale of the MSSP business. Increase primarily driven by strong patient growth at Oak Street and increased volumes at Signify. Oak Street Health showed some signs of pressure in first quarter medical cost trends.
    Total at-risk members at Oak Street: increased approximately 37% in the same period last year
    		grew 27%27%——
    Pharmacy and Consumer Wellness
    Adjusted operating income increased over 11% from the prior year quarter, primarily driven by increased prescription volume and improved drug purchase. First quarter results also benefited from stronger seasonal factors, including increased demand for certain vaccines and an extended flu season. Partially offsetting these items were continued pharmacy reimbursement pressure and the impact of softening consumer demand in the front store. Same-store front store sales were roughly flat, up nearly 1% after adjusting for the impact of leap day.
    Same-store revenue growth: over 14%Same-store pharmacy sales growth: nearly 18%Same-store prescription volumes increase: nearly 7%Retail pharmacy script share: approximately 27.6%
    		nearly $32 billionover 11%—adjusted operating income of over $1.3 billion

    Operational metrics

    22
    Cash of parent and unrestricted subsidiaries
    $1.5 billion
    Q1 FY25

    Balance at the end of the quarter.

    Individual exchange business variable losses
    $350 million to $400 million
    FY25

    Projected variable losses for the full year 2025 for the individual exchange business, which the company plans to exit in 2026.

    Premium deficiency reserve (PDR)
    $450 million
    Q1 FY25

    Established related solely to 2025 individual exchange coverage, reflecting updated seasonality projections and higher membership than previously anticipated.

    PDR impact on Medical Benefit Ratio
    130 basis points
    Q1 FY25

    The premium deficiency reserve increased the first quarter medical benefit ratio.

    Prior year reserve development (net of revenue estimates)
    $400 million
    Q1 FY25

    Contributed to adjusted operating income in the quarter, primarily driven by favorable year-over-year impact of prior year reserve development across all lines of business, partially offset by estimate changes related to prior period revenue.

    Front store sales growth (adjusted for leap day)
    nearly 1%
    Q1 FY25

    Same-store front store sales were roughly flat versus the prior year quarter but were up nearly 1% after adjusting for the impact of leap day in the first quarter of 2024.

    Medical cost trends
    elevated but appeared to show early signs of stabilization
    Q1 FY25

    Broadly in line with expectations for most businesses.

    Medical cost trends in Medicare
    higher
    Q1 FY25

    Trends in Medicare, while elevated, were modestly better than expectations.

    Medical cost trends in Group Medicare Advantage
    pressured
    Q1 FY25

    Trends remain pressured, with multiyear contracts taking longer to reprice.

    Oak Street Health medical cost trends
    early signs of pressure
    Q1 FY25

    While very immature, some signs of pressure in first quarter medical cost trends, which will be monitored closely.

    Pharmacy drug mix impact on Health Services AOI
    —
    Q1 FY25

    Primary driver of increased adjusted operating income in Health Services.

    Pharmacy client price improvements impact on Health Services AOI
    —
    Q1 FY25

    Partially offset the positive drivers in Health Services adjusted operating income.

    Pharmacy reimbursement pressure impact on PCW AOI
    —
    Q1 FY25

    Partially offset positive factors in Pharmacy and Consumer Wellness adjusted operating income.

    Softening consumer demand in front store impact on PCW AOI
    —
    Q1 FY25

    Partially offset positive factors in Pharmacy and Consumer Wellness adjusted operating income.

    CostVantage commercial scripts transitioned
    100%
    as of 1/1/25

    All commercial scripts moved into the CostVantage model, aiming for a more transparent model.

    CostVantage cash discount card space transitioned
    —
    as of 1/1/25

    The cash discount card space was also moved into the CostVantage model.

    Prior authorization approval rate (eligible requests)
    over 95%
    Q1 FY25

    Aetna maintains one of the shortest lists of treatments and procedures that require prior authorization.

    GLP-1s as pharmacy trend driver
    biggest
    Q1 FY25

    GLP-1s are the biggest pharmacy trend driver for clients, with trends rising faster than specialty drugs.

    Clients not covering GLP-1s
    about 1/3
    Q1 FY25

    Approximately one-third of clients have elected not to cover GLP-1s due to affordability concerns.

    Arkansas patients served by CVS
    over 300,000
    Q1 FY25

    Number of people currently served by CVS in Arkansas, impacted by new legislation.

    Arkansas prescriptions filled by CVS
    more than 4 million
    Q1 FY25

    Number of prescriptions filled by CVS in Arkansas, impacted by new legislation.

    Arkansas specialty patients impacted by legislation
    10,000
    Q1 FY25

    Number of patients with complex conditions like cancer and multiple sclerosis who will be affected by the Arkansas legislation.

    Industry KPIs

    9
    MetricValueDetails
    Utilization trendselevated
    Same facility volumesapproximately 37%%
    Stars rate environmentimproved
    Medical loss care ratio87.3%%
    Pharmacy scripts specialtyover $464 millionclaims
    Membership covered lives by line27.1 millionmembers
    Segment revenue operating income$43 billionUSD
    Adjusted EPS EBITDA leverage guidance$6.00 to $6.20USD
    Medical cost trend vs pricing assumptionelevated

    Deals & partnerships

    3
    Novo NordiskPartnership to significantly increase access to Wegovy for members at a more affordable price, including formulary action and retail pharmacy network inclusion.

    CVS Health is partnering with Novo Nordisk to prefer Wegovy on its largest commercial template, covering tens of millions of lives. CVS Pharmacy will also be the first retail pharmacy in the NovoCare Pharmacy network, providing convenient, safe, and affordable access for eligible patients.

    N/AExit from the ACO REACH program.

    Announced earlier this year as part of active portfolio management to ensure sustainable earnings and competitive viability.

    N/ASale of the MSSP business.

    Announced earlier this year as part of active portfolio management to ensure sustainable earnings and competitive viability.

    Risks & headwinds

    7
    Elevated Medical Cost TrendsRemainder of the year

    Medical cost trends remained elevated but appeared to show early signs of stabilization; higher trends in inpatient, outpatient and medical pharmacy in Medicare; inpatient trends on Group Medicare Advantage block remained quite high with some acceleration in outpatient.

    Mitigation: Maintaining a respectful view on medical cost trends in guidance; closely monitoring performance, especially in Group Medicare Advantage; implementing clinical opportunities and rate actions for Group MA.

    Individual Exchange Business UnderperformanceFY25, exit effective 2026

    Variable losses projected between $350 million and $400 million for full year 2025; established a premium deficiency reserve of approximately $450 million related to 2025 coverage.

    Mitigation: Decided to exit the individual exchange business effective 2026 to focus on areas with stronger capabilities (Medicare, commercial, Medicaid); committed to supporting members through transition.

    Arkansas Legislation ImpactOngoing

    Will leave hundreds of thousands of patients without community pharmacies, severely limiting access to critical drugs and increasing cost for employers and consumers; affects more than 10,000 specialty patients.

    Mitigation: Working to educate stakeholders on the ramifications of this flawed legislation; noting other states are rejecting the Arkansas approach; will continue to serve patients for as long as possible.

    Softening Consumer Demand in Front StoreRemainder of the year

    Softening consumer demand in the front store.

    Mitigation: Maintaining a cautious outlook for the remainder of the year.

    Potential TariffsRemainder of the year, '26 Medicare bids

    Potential impact on PCW and broader business, particularly the pharma supply chain and medical devices; not yet quantified.

    Mitigation: Closely monitoring announcements; for front store, looking at alternative sourcing and diversifying suppliers; for Aetna, contemplating impact for '26 Medicare bids.

    Oak Street Health Medical Cost Trends PressureQ1 FY25, monitoring closely over next several months

    Early signs of pressure in first quarter medical cost trends at Oak Street Health.

    Mitigation: Monitoring closely over the next several months as claims continue to develop.

    Vaccine/Immunization DemandEnd of this year (H2 FY25)

    Potential for volume impacts depending on government action and changes in consumer sentiment towards vaccines.

    Mitigation: Closely monitoring consumer sentiment and potential changes in protocols required to deliver vaccines, particularly for COVID vaccines, as guided by the ACIP committee.

    What to watch in Q2 FY25

    5

    Oak Street Health Medical Cost Trends

    Next several months
    Currentearly signs of pressure in first quarter medical cost trends
    TargetStabilization or improvement in medical cost trends

    Why it matters

    Impacts the profitability of the Health Care Delivery segment and overall company performance.

    While very immature, we have seen some signs of pressure in first quarter medical cost trends at Oak Street Health, which we will continue to monitor closely over the next several months as they continue to develop.

    Q&A highlights

    7

    Seeking color on Medicare Advantage trends across individual, Part D, and group MA, and how they compare to the high single-digit medical trend guidance for MA.

    Management highlighted operating stability, improved forecasting, and successful open enrollment. Early signs of stabilization in elevated trends for individual MA, with Medicaid and commercial performing well. Group MA remains a watch item due to elevated inpatient trends. The underlying Aetna business beat by $1 billion (excluding PDR), driven by Medicare, with core Medicare trends consistent to slightly better than outlook, but medical pharmacy stubbornly high.

    “early innings here, but the elevated trends that we've seen, we are starting to see early signs of stabilization.”

    asked by Justin Lake · answered by Steven Nelson

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Priorities and Leadership Changes

    CEO David Joyner emphasized building momentum and executing strategic priorities, including recent leadership appointments. Brian Newman was named Chief Financial Officer, effective May 12, and Amy Compton-Phillips as Chief Medical Officer, effective May 19. The company aims to be America's most trusted healthcare company by improving outcomes, expanding access, and improving affordability, leveraging its scaled assets and integrated model.

    02

    Prior Authorization Streamlining and Innovation

    Aetna has significantly streamlined its prior authorization process, with over 95% of eligible requests now approved within 24 hours. The company announced a novel approach to bundle multiple prior authorization requests, initially in cancer care, to reduce administrative burden on providers and expedite treatment. Plans are in place to expand this program to other conditions like musculoskeletal and cardiology services later this year.

    03

    GLP-1 Strategy and Affordability Initiatives

    CVS Health is partnering with Novo Nordisk to significantly increase access to Wegovy for its members at a more affordable price, making it a preferred formulary option for its largest commercial template. This initiative combines the medication with additional lifestyle clinical support through Caremark's weight management program. CVS Pharmacy is also the first retail pharmacy in the NovoCare Pharmacy network, providing convenient access for eligible patients across its 9,000 community health locations.

    04

    Portfolio Management and ACA Exchange Exit

    The company is actively managing its business portfolio, having exited the ACO REACH program and sold its MSSP business earlier this year. Due to continued underperformance and the lack of a clear path to material improvement, Aetna will exit the individual ACA exchange plans effective 2026. This decision allows the company to focus on areas where it has stronger capabilities, such as Medicare, commercial, and Medicaid.

    05

    Arkansas Legislation and Industry Advocacy

    CVS Health highlighted the negative impact of recent Arkansas legislation, which it believes will disrupt care for over 300,000 patients and 10,000 specialty patients, limit access to critical drugs, and increase costs. The company is working to educate stakeholders on the ramifications of this legislation and noted that other states are rejecting similar approaches, believing common sense will prevail against policies that remove competitive pharmacies from the marketplace.

    06

    CostVantage Model and PCW Performance

    The Pharmacy and Consumer Wellness (PCW) segment delivered a strong quarter, with 100% of commercial scripts now transitioned to the CostVantage model as of Q1 FY25. This transparent model aims to provide stable, predictable margins and pass value back to payers. The company plans to transition all remaining scripts to this model by 2026, continuing to leverage its efficient operations and innovative pricing to improve health outcomes.

    AI-generated summary of the company’s earnings call. Not investment advice.