CVS profit beats estimates on strong performance of pharmacy operations

CVS Health Corp beat Wall Street estimates for quarterly profit on Wednesday as strength in its drugstores and pharmacy benefit management business offset higher-than-expected medical costs at its insurance unit.

The share price in the company fell over 1% in premarket trading on Wednesday.

The company operates one of the largest U.S. PBMs, CVS Caremark, which negotiates drug prices between insurers and manufacturers.

The health services business, under which CVS operates the PBM, recorded an 8% growth in revenue to $46.89 billion in the third quarter, partly driven by growth in specialty pharmacy, which provides drugs for complex conditions like arthritis and cancer, as well as increased prices of branded drugs, the company said.

PBMs have come under heightened scrutiny over their role in surging healthcare costs in the United States, with several bills in the works that would require them to make their business dealings public, including the fees they earn on transactions.

CVS’ pharmacy and consumer wellness segment recorded 6% revenue growth to $28.87 billion, boosted by higher prices of drugs and increased prescription volume.

The earnings come on the final day of a three-day walkout dubbed “Pharmageddon” by staff at some of the company’s and Walgreens’ pharmacies, with the two largest U.S. drugstore chains facing the heat for “grossly understaffing” stores, leaving their employees overburdened.

Overall, CVS generated $61.30 billion in product revenue, beating the analysts’ average estimate of $60.74 billion, according to LSEG data.

CVS’ health insurance business garnered $24.66 billion in premiums, beating the average estimate of $24.46 billion, but its medical costs were also high due to increased utilization of services under its government-supported plans for older adults.

CVS’ insurance business recorded medical benefit ratio, or the percentage of claims paid compared to premiums collected, was 85.7% in the third quarter, compared with analysts’ estimates of 85.1%.

On an adjusted basis, the company reported a profit of $2.21 per share, above the average estimate of $2.13 per share. (Reporting by Mariam Sunny and Leroy Leo in Bengaluru; Editing by Saumyadeb Chakrabarty)

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