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    CVS
    Earnings call· Sep 2025(Q3 FY25)

    CVS HEALTH Corp CVS

    Oct 29, 2025 Source

    Executive summary

    CVS Health Q3 FY25 — Adjusted EPS Guidance Raised Amidst Diversified Performance

    CVS Health reported a solid third quarter, raising its full-year adjusted EPS guidance for the third consecutive time, driven by strong performance across its diversified segments. While the Health Care Delivery business saw a significant goodwill impairment due to strategic adjustments in Oak Street Health's growth, and the PBM segment faced near-term contract pressures, the company's Aetna and Pharmacy & Consumer Wellness businesses demonstrated resilience and growth. Management remains confident in its long-term strategy, emphasizing the transition to value-based care and transparent drug pricing models, with preliminary expectations for mid-teens adjusted EPS growth in 2026.

    Highlights

    5

    • Adjusted EPS guidance for FY25 increased by $0.25 to a range of $6.55 to $6.65.

    • Q3 FY25 adjusted EPS of $1.60, a nearly 47% increase year-over-year.

    • Q3 FY25 total revenues reached a new record of nearly $103 billion, up approximately 8% year-over-year.

    • Aetna expects over 81% of Medicare Advantage members to be in plans rated 4 stars or higher for 2026.

    • Pharmacy & Consumer Wellness (PCW) segment delivered strong performance with retail pharmacy script share growing to approximately 28.9%.

    Concerns

    5

    • Health Care Delivery recorded a $5.7 billion goodwill impairment charge due to tempering Oak Street Health clinic growth.

    • Health Services adjusted operating income guidance for FY25 decreased by approximately $240 million due to near-term market dynamics in PBM client contracts.

    • Medical benefit ratio (MBR) in Health Care Benefits was impacted by approximately 100 basis points from provider liabilities and worsening individual exchange risk adjustment expectations.

    • Medical cost trends remained elevated across all products.

    • Pharmacy & Consumer Wellness adjusted operating income decreased approximately 7% year-over-year due to continued pharmacy reimbursement pressure and increased investments.

    Guidance & targets

    12
    CategoryTargetConfidence
    Full-year 2025 Adjusted EPS
    $6.55 to $6.65
    high materiality
    High
    Full-year 2025 Total Revenues
    at least $397 billion
    high materiality
    High
    Full-year 2025 Health Care Benefits Adjusted Operating Income
    approximately $2.72 billion
    medium materiality
    High
    Full-year 2025 Health Care Benefits Medical Benefit Ratio
    approximately 91%
    medium materiality
    High
    Full-year 2025 Health Services Adjusted Operating Income
    at least $7.1 billion
    medium materiality
    Medium
    Full-year 2025 Pharmacy & Consumer Wellness Adjusted Operating Income
    at least $5.95 billion
    medium materiality
    High
    Full-year 2025 Enterprise Adjusted Operating Income
    $14.14 billion to $14.31 billion
    high materiality
    High
    Full-year 2025 Cash Flow from Operations
    $7.5 billion to $8 billion
    high materiality
    High
    Full-year 2025 Adjusted Effective Tax Rate
    25.3%
    low materiality
    High
    2026 Adjusted EPS Growth
    mid-teens growth
    high materiality
    Medium
    2026 Health Services Adjusted Operating Income Growth
    low single-digit growth
    medium materiality
    Medium
    2026 Individual Medicare Advantage Membership
    roughly flat
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Health Care Benefits
    Revenue increase primarily driven by government business due to IRA impact on Medicare Part D. Medical membership decline primarily from individual exchange and Medicare product lines, partially offset by commercial fee-based growth. Adjusted operating income increased substantially from prior year loss. MBR decrease driven by favorable premium deficiency reserves, higher favorable prior period development, and improved government business performance, partially offset by IRA impact and higher acuity in individual exchange. MBR impacted by 100 bps from provider liabilities and individual exchange risk adjustment expectations. Medical cost trends remained elevated but modestly favorable to expectations in individual MA.
    Medical membership: 26.7 millionMedical membership change YoY: -445,000Medical benefit ratio (MBR): 92.8%MBR change YoY: -240 bpsDays claim payable: 42.5 days
    		$36 billion9%—$314 million (adjusted operating income)
    Health Services
    Revenue increase primarily driven by pharmacy drug mix and brand inflation, partially offset by continued pharmacy client price improvements. Adjusted operating income decrease primarily driven by continued pharmacy client price improvements, partially offset by improved purchasing economics. Health Care Delivery performance was in line with expectations, with growth driven by patient growth at Oak Street and increased volumes at Signify. A $5.7 billion goodwill impairment charge was recorded due to strategic changes in Health Care Delivery, specifically tempering Oak Street clinic growth.
    Adjusted operating income change YoY: -7%Health Care Delivery total revenues growth (ex-CVS Accountable Care exit): 25%
    		$49 billion11%—$2.1 billion (adjusted operating income)
    Pharmacy & Consumer Wellness
    Revenue increase primarily driven by pharmacy drug mix and increased prescription volume, offset by continued pharmacy reimbursement pressure. Same-store revenue growth was strong. Retail pharmacy script share grew, benefiting from operational excellence and market disruption. Adjusted operating income decrease primarily driven by continued pharmacy reimbursement pressure and increased investments in colleagues and capabilities, partially offset by increased prescription volume.
    Same-store revenue growth: >14%Retail pharmacy script share: 28.9%Same-store pharmacy sales growth: 17%Same-store prescription volumes growth: 9%Same-store front store sales increase: 150 bpsAdjusted operating income change YoY: -7%
    		$36 billion12%—$1.5 billion (adjusted operating income)

    Operational metrics

    12
    Dividends distributed
    $2.6 billion
    YTD Q3 FY25

    Dividends distributed to shareholders year-to-date.

    Cash at parent and unrestricted subsidiaries
    $2.3 billion
    Q3 FY25

    Cash balance at the end of the quarter.

    Goodwill impairment charge
    $5.7 billion
    Q3 FY25

    Recorded within Health Care Delivery due to tempering Oak Street Health clinic growth.

    PBM new client wins
    $6 billion
    Selling Season

    New client wins for the selling season.

    PBM client retention rate
    high 90s
    Selling Season

    Retention rate for the selling season.

    Medicare Advantage members in 4 stars or higher plans
    81%
    2026

    Expected percentage of Medicare Advantage members in highly-rated plans.

    Medicare Advantage members in 4.5 stars plans
    63%nearly double industry average
    2026

    Expected percentage of Medicare Advantage members in 4.5-star plans, nearly double the industry average.

    PCW customer base growth
    2.6%vs last year
    Q3 FY25

    Growth in customer base for the front store.

    PCW customer trips growth
    2.7%vs last year
    Q3 FY25

    Growth in customer trips for the front store.

    PCW retail market share gain (front store)
    2 bpsvs last year
    Q3 FY25

    Market share gain in the front store.

    CostVantage Medicare transition progress
    60%
    Q3 FY25

    Percentage of eligible Medicare business transitioned to cost-based pricing models.

    Prior year reserve development and out-of-period items impact on EPS
    $0.45
    YTD Q3 FY25

    Contribution to year-to-date results from prior year reserve development and other out-of-period items, used to adjust 2026 EPS baseline.

    Industry KPIs

    9
    MetricValueDetails
    Utilization trendsElevated
    Stars rate environment81%%
    Medical loss care ratio92.8%%
    Client retention new wins$6 billionUSD
    Pharmacy scripts specialty28.9%%
    Membership covered lives by line26.7 millionmembers
    Segment revenue operating income$49 billionUSD
    Adjusted EPS EBITDA leverage guidance$6.55 to $6.65USD/share
    Medical cost trend vs pricing assumptionElevated

    Deals & partnerships

    3
    Rite AidAcquisition of certain assets

    Acquisition of Rite Aid assets, contributing to PCW segment performance and market share growth.

    AdministrationIVF initiative

    Partnership with the administration on an IVF initiative, with CVS Specialty Pharmacy playing a critical role.

    NovoCareGLP-1 program

    First large provider to join the NovoCare program for GLP-1s, aimed at lowering the cost of obesity products in the direct-to-consumer market.

    Risks & headwinds

    6
    Goodwill impairment in Health Care DeliveryQ3 FY25

    $5.7 billion

    Mitigation: Tempering Oak Street Health clinic growth, closing underperforming clinics, investments in technology, new leadership, and fair contracts with payer clients to improve financial performance.

    PBM client contract pressuresNear-term (next couple of years)

    Approximately $240 million reduction in FY25 Health Services adjusted operating income guidance

    Mitigation: Working diligently to recontract over the next few years, transitioning contracts towards drug-level pricing (TrueCost model), and focusing on creating competition and lowering net drug costs.

    Elevated medical cost trendsOngoing

    Remained elevated across all products

    Mitigation: Disciplined approach to plan design and footprint in Medicare Advantage, repricing opportunities in group business, and maintaining a prudent outlook on medical cost trends.

    Pharmacy reimbursement pressureOngoing

    Continued pressure, contributing to 7% YoY decrease in PCW adjusted operating income

    Mitigation: Focus on operational excellence, superior customer experiences, investments in technology and colleagues, and the multi-year transition to the CostVantage model to better align cost of goods with reimbursement.

    Broader pressures in Medicaid industry2026

    Unquantified

    Mitigation: Taking a cautious outlook despite good progress in Medicaid rate advocacy discussions.

    Impact of provider liabilities and individual exchange risk adjustmentQ3 FY25 (provider liabilities dating back to 2018)

    100 basis points impact on MBR

    Mitigation: Recognized and accounted for; underlying MBR performance was stronger when adjusted for these items, particularly in individual MA.

    What to watch in Q4 FY25

    5

    Aetna MA margin improvement

    FY26
    CurrentMeaningful margin improvement expected in 2026
    TargetContinued progress towards target margins

    Why it matters

    Aetna's margin recovery is a key driver for overall enterprise earnings growth and reflects the success of strategic adjustments.

    Beginning with our Health Care Benefits business, we expect another year of meaningful margin improvement at Aetna.

    Q&A highlights

    6

    Are the PBM headwinds due to the shift to TrueCost, and how will future PBM and plan sponsor economics look under a TrueCost model?

    The PBM headwinds are not from TrueCost adoption but from specific client contracts impacted by slower GLP-1 growth and issues with autoimmune/HIV products. CVS believes the PBM industry will continue to deliver value by lowering drug costs, citing Cordavis and GLP-1 formulary actions. The TrueCost model, launched two years ago, is a deliberate move towards greater transparency, benefiting consumers at the pharmacy counter, and is seen as the future pricing model. The company is actively recontracting to address near-term pressures.

    “First off, let me be clear, this is not from TrueCost. The TrueCost model is not what's driving this. As you know, in the legacy PBM models, in the PBM marketplace, we predict and try to drive rebate guarantees, which is a way in which we derive the value for our customers.”

    asked by Lisa Gill · answered by Prem Shah

    2 min read5 chapters

    Detailed Narrative

    01

    Aetna's Strong Recovery and Star Ratings Leadership

    Aetna continues its path to recovery, demonstrating renewed vigor and optimism. The business is driving exceptional results, maintaining its industry leadership in 2026 Medicare Advantage Star Ratings. Over 81% of Medicare Advantage members are expected to be in plans rated 4 stars or higher, with 63% in 4.5-star plans, nearly double the industry average. This performance is attributed to effective collaboration across the enterprise, driving quality, service, and cost reduction, positioning Aetna well for continued recovery in 2026.

    02

    Health Care Delivery Strategic Adjustments and Goodwill Impairment

    CVS Health recorded a $5.7 billion goodwill impairment within Health Care Delivery, primarily due to a decision to temper Oak Street Health clinic growth over the next few years. While the business performance was in line with recent expectations, the strategic shift necessitated the charge. Value-based care remains a critical component of the strategy, with actions underway to improve financial performance, including investments in technology, new leadership, and fair contracts with payer clients. Underperforming clinics will be closed to ensure sustainable margins.

    03

    Pharmacy Services Evolution and TrueCost Model

    The Pharmacy Services segment is navigating near-term market dynamics, leading to a revision in its FY25 adjusted operating income guidance. These pressures stem from specific client contracts, not the TrueCost model, and are related to slower GLP-1 growth and issues with certain autoimmune and HIV products. Despite this, the company is bullish on the long-term viability of its PBM model, emphasizing its role in lowering drug costs through initiatives like Cordavis and the TrueCost model, which guarantees net cost for individual drugs and drives transparency. The segment achieved $6 billion in new client wins with high retention rates.

    04

    Pharmacy & Consumer Wellness (PCW) Momentum

    The PCW segment delivered another strong quarter, with revenues increasing nearly 12% year-over-year and same-store sales up over 14%. Retail pharmacy script share grew to approximately 28.9%, benefiting from operational excellence and market disruption🌐, including the integration of Rite Aid assets. Despite persistent reimbursement pressures and lower vaccine volumes, the segment offset these with market share gains and strong front-store momentum, posting positive comps and growing its customer base. Investments in technology and colleagues are contributing to this improved trajectory.

    05

    Diversified Business Strength and Future Outlook

    CVS Health's diversified business model continues to enable strong results amidst a dynamic environment. The company is focused on simplifying healthcare, lowering costs, and driving innovation. Management expects continued momentum into 2026, with preliminary guidance for mid-teens adjusted EPS growth, after adjusting for prior-year reserve development and other out-of-period📎 items. The company plans to provide formal 2026 guidance at its Investor Day in December, highlighting its commitment to credible financial targets and long-term success.

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