Financial Performance Overview

CVS Health Corporation, a leading health solutions company, reported its financial results for the year ended December 31, 2024. The company has four main business segments: Health Care Benefits, Health Services, Pharmacy & Consumer Wellness, and Corporate/Other.

Total revenues for 2024 increased by 4.2% to $372.8 billion compared to the prior year. This growth was driven by strong performance in the Health Care Benefits and Pharmacy & Consumer Wellness segments, partially offset by a decline in the Health Services segment.

Operating income decreased by 38.0% to $8.5 billion in 2024. This was primarily due to elevated Medicare utilization and higher acuity in Medicaid in the Health Care Benefits segment, as well as an increase in restructuring charges compared to 2023. These decreases were partially offset by an increase in net realized capital gains and the absence of a loss on assets held for sale related to the company’s long-term care business.

The company’s effective income tax rate increased to 25.4% in 2024 from 25.1% in the prior year, primarily due to the mix of pre-tax income and certain non-deductible expenses.

Segment Performance

Health Care Benefits Segment The Health Care Benefits segment, which operates as one of the nation’s leading diversified health care benefits providers, saw total revenues increase by 23.7% to $130.7 billion in 2024. This growth was driven by strong performance in the Medicare and individual exchange product lines.

The medical benefit ratio (MBR), which represents health care costs as a percentage of premium revenues, increased to 92.5% in 2024 from 86.2% in the prior year. This was primarily due to increased utilization, the unfavorable impact of the company’s Medicare Advantage star ratings, and higher acuity in Medicaid.

Operating expenses in the segment increased by 11.1% to $18.0 billion, reflecting increased costs to support business growth. Adjusted operating income decreased by 94.5% to $307 million, driven by the elevated utilization and higher acuity.

Medical membership increased to 27.1 million as of December 31, 2024, up from 25.7 million at the end of 2023, reflecting growth in the Medicare and Commercial product lines.

Health Services Segment The Health Services segment, which provides pharmacy benefit management (PBM) solutions and health care services, saw total revenues decrease by 7.1% to $173.6 billion in 2024. This was primarily due to the loss of a large client and continued pharmacy client price improvements, partially offset by growth in specialty pharmacy and contributions from the company’s recent health care delivery acquisitions.

Operating expenses increased by 8.6% to $3.2 billion, driven by costs associated with the Oak Street Health acquisition. Adjusted operating income decreased by 0.9% to $7.2 billion, as the impact of the client loss and price improvements was largely offset by improved purchasing economics.

Pharmacy claims processed decreased by 18.2% on a 30-day equivalent basis, primarily due to the loss of the large client. The generic dispensing rate remained relatively stable at 87.4%.

Pharmacy & Consumer Wellness Segment The Pharmacy & Consumer Wellness segment, which operates the company’s retail pharmacies and provides related services, saw total revenues increase by 6.6% to $124.5 billion in 2024. This was driven by pharmacy drug mix and increased prescription volume, including contributions from vaccinations, partially offset by continued pharmacy reimbursement pressure and decreased front store volume.

Operating expenses remained relatively flat at $19.6 billion, as the absence of gains from antitrust legal settlements and increased investments were offset by the decrease in store count. The segment recorded $747 million in restructuring charges related to the planned closure of 271 retail stores in 2025.

Adjusted operating income decreased by 3.2% to $5.8 billion, primarily due to the continued pharmacy reimbursement pressure and decreased front store volume, partially offset by the increased prescription volume and improved drug purchasing.

Prescriptions filled increased by 4.0% on a 30-day equivalent basis, driven by increased utilization, partially offset by the decrease in store count. The generic dispensing rate increased to 88.9%.

Corporate/Other Segment The Corporate/Other segment, which includes management and administrative expenses, as well as products the company no longer actively markets, reported total revenues of $451 million, consistent with the prior year. The segment recorded $432 million in restructuring charges, primarily related to asset impairments and severance costs.

Adjusted operating loss was $1.3 billion, relatively flat compared to 2023.

Liquidity and Capital Resources

As of December 31, 2024, the company had approximately $8.6 billion in cash and cash equivalents, with $3.8 billion held by the parent company or non-restricted subsidiaries.

Net cash provided by operating activities decreased by $4.3 billion in 2024 compared to 2023, primarily due to the impact of elevated Medicare utilization on earnings. Net cash used in investing activities decreased by $13.3 billion, mainly due to the acquisitions of Oak Street Health and Signify Health in 2023, partially offset by higher net purchases of investments.

The company had $2.1 billion of commercial paper outstanding as of December 31, 2024, with access to $7.5 billion in back-up revolving credit facilities. In 2024, the company issued $3.0 billion in junior subordinated notes and $5.0 billion in senior notes, using the proceeds to repay certain outstanding senior notes and for general corporate purposes.

The company’s long-term debt was rated “BBB” by Fitch, “Baa3” by Moody’s, and “BBB” by S&P as of December 31, 2024. Moody’s and S&P changed their outlook on the company’s long-term debt from “Stable” to “Negative” in August 2024, and Moody’s subsequently downgraded the company’s ratings in December 2024.

The company has two active share repurchase programs, with $10.0 billion and $1.5 billion remaining under the 2022 and 2021 programs, respectively, as of December 31, 2024. During 2024, the company repurchased $3.0 billion of its common stock.

Outlook and Key Trends

The company highlighted several key business and regulatory trends and uncertainties that could impact its future performance:

Business Trends and Uncertainties:

• Expect medical membership declines in Medicare and individual exchange products, which may result in financial volatility
• Continued elevated utilization levels expected to pressure the Health Care Benefits segment and health care delivery assets
• Potential need to record premium deficiency reserves in the Health Care Benefits segment due to elevated utilization
• Medicaid business experiencing medical cost pressures, largely driven by higher acuity following the resumption of member redeterminations
• Continued pressure from sharing a larger portion of rebates, fees, and discounts with clients, as well as limitations on pricing that includes retail network “differential” or “spread”
• Potential supply disruptions and impact on product mix for glucagon-like peptide 1 (GLP-1) drugs
• Regulatory changes or consumer sentiment shifts that could negatively impact demand for immunizations
• Exposure to increased costs and supply chain disruptions from new tariffs
• Potential decline in consumer discretionary spending and shift to value, grocery, and digital retailers impacting front store sales

Regulatory Trends and Uncertainties:

• Exposure to funding and regulation changes for various Medicare programs, including risk adjustment mechanisms
• Legislation and regulations seeking to comprehensively regulate pharmacy benefit manager (PBM) activities, which could adversely affect the company’s ability to conduct business on commercially reasonable terms

The company believes it is well-positioned to navigate these challenges and continue to deliver value to its customers and shareholders. The company is focused on ongoing cost savings initiatives, investments in efficiency, and strategic actions to streamline and simplify the organization.

Strengths and Weaknesses

Strengths:

• Diversified business model across health care benefits, pharmacy services, and retail operations
• Leading market positions in key business segments
• Ongoing investments in technology, digital capabilities, and health care delivery assets to drive innovation and improve the customer experience
• Strong liquidity and access to capital markets to fund growth initiatives and strategic investments

Weaknesses:

• Exposure to regulatory changes and legislative actions that could impact key business segments
• Pressure on profitability in the Health Care Benefits segment due to elevated utilization and medical cost trends
• Continued pricing and competitive pressures in the PBM and retail pharmacy businesses
• Potential for volatility in financial results due to membership disruptions and changes in utilization patterns

Outlook

Despite the near-term challenges, the company remains optimistic about its long-term growth prospects. The company is focused on leveraging its integrated model to expand into personalized, technology-driven care delivery and health services, increasing access to quality care, delivering better health outcomes, and lowering overall health care costs.

The company’s investments in efficiency, cost savings initiatives, and strategic actions to streamline the organization are expected to position it well to navigate the current environment and capitalize on future opportunities. However, the company’s financial performance will continue to be influenced by a variety of factors, including competitive dynamics, legislative and regulatory changes, and broader economic and market conditions.