CVS Health reports mixed Q2 earnings — and Aetna’s Brian Kane is out

On Wednesday morning, CVS Health Corp stock fell after the company reported mixed second-quarter earnings and lowered its diluted earnings-per-share guidance due to poor performance within its healthcare benefits segment.

CVS reported net income fell nearly 9% to $1.77 billion, or $1.41 per share, in the second quarter compared to $1.9 billion, or $1.48, in the year-ago period due largely to a nearly 40% decrease in adjusted operating income in the company’s health care benefits segment. That segment includes Aetna, CVS’s health insurance business, and has 27 million health plan members across Medicaid, Medicare and commercial insurance lines of business. 

The company reported second-quarter sales of $91.23 billion, missing the target of $91.51 billion. Adjusted EPS of $1.83 decreased from $2.21 in the prior year, beating the consensus of $1.73. 

CVS blamed those numbers on: “increased utilization and the unfavorable impact of the previously disclosed decline in the company’s Medicare Advantage star ratings for the 2024 payment year within the Medicare product line, higher acuity in Medicaid primarily attributable to the resumption of redeterminations, as well as a change in estimate related to the individual exchange business risk adjustment accrual for the 2023 plan year recorded in the second quarter of 2024.”

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Aetna also reported an 8.8% decrease in revenue for the same period year over year.

“We have many points of differentiation that position us to win now and into the future,” said CVS President and CEO Karen S. Lynch in a statement. “We are taking action today to ensure we make the most of our many opportunities, including leadership changes in the Health Care Benefits segment.”

Those changes include the departure of Aetna Executive Vice President and President Brian Kane, with Lynch stepping in to take over “day-to-day management” of Aetna due to its poor performance. 

In addition, Katerina Guerraz, CVS Health executive vice president and chief strategy officer, will now act as chief operating officer of the health care benefits segment. 

Despite the setbacks, total revenues increased 2.6% to $91.2 billion, primarily driven by growth in the healthcare benefits and pharmacy and consumer wellness segments.

Adjusted operating income decreased 16.4% to $3.74 billion.

The poor-performing healthcare benefits segment contributed to the company’s decision to lower diluted earnings-per-share guidance to a range of “$4.95 to $5.20 from at least $5.64” and reduce adjusted earnings-per-share guidance to a range of “$6.40 to $6.65 from at least $7.” CVS additionally lowered its projection on “cash flow from operations” to “approximately $9 billion from at least $10.5 billion.”

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This is the second consecutive quarter in which CVS has lowered its earnings-per-share guidance after admitting issues within its health insurance businesses, particularly Medicare Advantage, which has experienced higher costs due to increased usage from seniors.