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WOONSOCKET, R.I. — CVS Health topped analysts’ expectations for fourth-quarter sales and earnings, led by strong insurance and retail results.
Earnings per share for the three months ended Dec. 31 rose 0.5% from the year-ago period to $1.99 on revenue of $83.8 billion (up 9.5%). Wall Street had projected adjusted EPS of $1.92 on revenue of $76.2 billion.
The company posted the results on the heels of its announcement that it was buying primary care center operator Oak Street Health for $10.6 billion.
Karen Lynch
“Last year was defined by outperformance across our foundational businesses, robust cash flow from operations and meaningful progress against our value-based care delivery strategy,” said president and CEO Karen Lynch. She called 2022 “a year of progress,” saying, “we continue to build on that momentum with bold moves that will improve the health care experience.”
Full year revenue increased 10.4%, driven by growth across all segments.
Operating income increased 62.3% in the fourth quarter compared to a year earlier, primarily due to the absence of a store impairment charge of approximately $1.4 billion recorded in the prior year, as well as a pre-tax gain of $250 million on the sale of the company’s wholly-owned subsidiary bswift LLC (“bswift”) recorded in the three months ended December 31, 2022. These increases were partially offset by the decreases in adjusted operating income described below.
Operating income decreased 41.3% for the year ended December 31, compared to the prior year primarily due to $5.8 billion of opioid litigation charges and a $2.5 billion loss on assets held for sale related to the write-down of the Omnicare long-term care business (“LTC business”), both of which were recorded during 2022. These decreases were partially offset by the absence of the store impairment charge of approximately $1.4 billion and a $431 million goodwill impairment charge on the remaining goodwill of the LTC reporting unit, both of which were recorded in the prior year, a decrease in amortization of intangible assets compared to the prior year, as well as pre-tax gains of $250 million on the sale of bswift and $225 million on the sale of PayFlex Holdings, Inc. (“PayFlex”) recorded in 2022.
Adjusted operating income decreased $141 million in the three months ended December 31, 2022 compared to the prior year primarily driven by declines in the Retail/LTC and Corporate/Other segments, largely offset by increases in the Health Care Benefits and Pharmacy Services segments. Adjusted operating income increased $220 million in the year ended December 31, 2022 compared to the prior year primarily driven by increases in the Health Care Benefits and Pharmacy Services segments, partially offset by declines in the Retail/LTC and Corporate/Other segments.
Interest expense decreased $56 million, or 9.2%, and $216 million, or 8.6%, respectively, due to lower debt in the three months and year ended December 31, 2022.
The effective income tax rate in the fourth quarter increased to 26.0% compared to 17.5% in the prior year primarily due to the absence of the favorable impact of a prior year refund claim. The effective income tax rate for the full year increased to 26.0% compared to 24.2% in the prior year primarily due to certain nondeductible legal charges and basis differences on the sale of certain subsidiaries in the year ended December 31, 2022. These increases were partially offset by the impact of certain discrete tax items concluded in the first quarter of 2022.
Health Care Benefits segment revenues increased 11.3% and 11.2% for the three months and year ended December 31, 2022, respectively, compared to the prior year driven by growth across all product lines.
Adjusted operating income increased 68.2% for the three months ended December 31, 2022 compared to the prior year primarily driven by the net favorable impact of COVID-19 compared to the prior year and strong underlying performance, partially offset by the unfavorable impact of the flu compared to the prior year.
Adjusted operating income increased 19.4% for the year ended December 31, 2022 compared to the prior year primarily driven by the net favorable impact of COVID-19 compared to the prior year, strong underlying performance and membership growth. These increases were partially offset by incremental investments to support growth in the business, the unfavorable impact of the flu compared to the prior year and net realized capital losses.
The MBR decreased from 87.0% to 86.0% in the three months ended December 31, 2022 compared to the prior year and decreased from 85.0% to 84.0% in the year ended December 31, 2022 compared to the prior year. The decrease in both periods was primarily driven by the net favorable impact of COVID-19 compared to the prior year, partially offset by the unfavorable impact of the flu compared to the prior year.
Medical membership as of December 31, 2022 of 24.4 million increased 109,000 members compared with September 30, 2022, reflecting increases across all product lines.
Medical membership as of December 31, 2022 of 24.4 million increased 548,000 members compared with December 31, 2021, reflecting increases in Medicare and Commercial membership, as underlying Commercial growth more than offset the impact of international divestitures. These increases were partially offset by a decline in Medicaid membership reflecting the previously disclosed loss of a large customer in the third quarter of 2022.
The segment experienced favorable development of prior-periods’ health care cost estimates in its Government Services and Commercial businesses during the three months ended December 31, 2022, primarily attributable to third quarter 2022 performance.
Prior years’ health care costs payable estimates developed favorably by $654 million during the year ended December 31, 2022. This development is reported on a basis consistent with the prior years’ development reported in the health care costs payable table in the Company’s annual audited financial statements and does not directly correspond to an increase in 2022 operating results.
Pharmacy Services segment revenues increased 11.2% and 10.6% for the three months and year ended December 31, 2022, respectively, compared to the prior year primarily driven by increased pharmacy claims volume, growth in specialty pharmacy and brand inflation, partially offset by continued client price improvements.
Adjusted operating income increased 9.0% and 7.2% for the three months and year ended December 31, 2022, respectively, compared to the prior year primarily driven by improved purchasing economics, including increased contributions from the products and services of the Company’s group purchasing organization, partially offset by continued client price improvements.
Total pharmacy claims processed increased 3.1% and 4.1% on a 30-day equivalent basis for the three months and year ended December 31, 2022, respectively, compared to the prior year primarily driven by net new business, increased utilization and the impact of an elevated cough, cold and flu season compared to the prior year. These increases were partially offset by a decrease in COVID-19 vaccinations. Excluding the impact of COVID-19 vaccinations, total pharmacy claims processed increased 4.6% and 5.1% on a 30-day equivalent basis for the three months and year ended December 31, 2022, respectively, compared to the prior year.
Retail/LTC revenues increased 4.0% and 6.5% for the three months and year ended December 31, 2022, respectively, compared to the prior year primarily driven by increased prescription and front store volume, including the impact of an elevated cough, cold and flu season compared to the prior year, pharmacy drug mix and brand inflation. These increases were partially offset by decreased COVID-19 vaccinations and diagnostic testing, the impact of recent generic introductions and continued pharmacy reimbursement pressure. Same-store sales for the quarter advanced 7.7%.
Adjusted operating income decreased 25.1% and 12.0% for the three months and year ended December 31, 2022, respectively, compared to the prior year primarily driven by decreased COVID-19 vaccinations and diagnostic testing, continued pharmacy reimbursement pressure, increased investments in the segment’s operations and capabilities and decreased gains from legal settlements compared to the prior year. These decreases were partially offset by the increased prescription volume described above, improved generic drug purchasing and the favorable impact of business initiatives in the three months and year ended December 31, 2022. The decrease in adjusted operating income for the year ended December 31, 2022 was also partially offset by increased front store volume.
Prescriptions filled increased 0.8% and 2.3% on a 30-day equivalent basis for the three months and year ended December 31, 2022, respectively, compared to the prior year primarily driven by increased utilization and the impact of an elevated cough, cold and flu season compared to the prior year, partially offset by a decrease in COVID-19 vaccinations. Excluding the impact of COVID-19 vaccinations, prescriptions filled increased 4.0% and 4.4% on a 30-day equivalent basis for the three months and year ended December 31, 2022, respectively, compared to the prior year.
CVS issued its full-year 2023 GAAP diluted EPS guidance range of $7.73 to $7.93 and reaffirmed its full-year 2023 Adjusted EPS guidance range of $8.70 to $8.90. The company also issued its full-year 2023 cash flow from operations guidance range of $12.5 billion to $13.5 billion.
The adjustments between full-year 2023 GAAP diluted EPS and Adjusted EPS include amortization of intangible assets, office real estate optimization charges and the corresponding income tax benefit or expense related to the items excluded from adjusted income attributable to CVS Health.
The full-year guidance does not include any impact, including acquisition-related transaction and integration costs, related to the pending acquisition of Signify Health, Inc.
