New CEO at CVS begins to build his team with a goal of reviving the struggling health care giant
AP Health Writer (AP) — CVS Health fell short on third-quarter profit, but it posted strong sales and the health care giant shook up leadership under new CEO David Joyner after a rough year that has sent shares plunging.
Shares jumped Wednesday along with markets as a whole surged on an election that will send Donald Trump back to the White House.
Joyner named UnitedHealth executive Steve Nelson as the leader of the company’s troubled health insurance wing, Aetna. That appointment is effective immediately.
Prem Shah, who joined the company in 2013, will lead CVS Caremark, CVS Pharmacy, and the company’s Health Care Delivery businesses.
CVS Health runs one of the nation’s largest drugstore chains and a huge pharmacy benefit management business that operates prescription drug coverage for employers, insurers and other big clients. It also covers nearly 27 million people through its Aetna insurance arm.
CVS’ insurance business has dragged on the company’s performance and many see in Nelson an industry veteran who can provide a needed jolt.
“The new leadership announcement gives us hope that CVS is moving quickly to improve its business execution,” said John Boylan at Edward Jones. “However, we also believe that these are the first steps in CVS improving its operations, which may take time. Having said that, we will be watching closely what changes management will make and how those changes may translate into sustainable sales and earnings growth rates.”
The company earned $87 million in the three months ended in September, down 96% from a year ago. Results were weighed down by hefty restructuring charges. On an adjusted basis, earnings per share totaled $1.09, falling short of the average Street forecast of $1.44 per share. Revenue rose 6.3% to $95.43 billion, topping analysts’ estimates of $92.72 billion, according to a FactSet survey.
The company said Oct. 18, when it announced the resignation of CEO Karen Lynch, that adjusted earnings in the quarter would fall between $1.05 and $1.10 per share. Analysts at the time expected $1.69 per share.
CVS Health has cut its forecast three times this year. The company is slashing costs but, like some rivals, has been dogged by rising claims from its Medicare Advantage coverage.
That involves privately run versions of the federal government’s coverage program mainly for people age 65 and older.
CVS Health also said it has been hurt by a quality ratings drop for those plans and pressure from Medicaid coverage it manages in several states.
The performance has drawn criticism from shareholders like the hedge fund Glenview Capital Management, which has said the company was operating well below its potential.
Glenview said last month that CVS Health’s struggles in Medicare Advantage “reflect the poor decisions and risk management of a select few.
“We believe these issues are quite fixable with strong leadership and appropriate (board) oversight and risk management,” Glenview said in a statement.
On the drugstore side, CVS Health is wrapping up a three-year plan to close about 900 stores, and it said last month it would shutter an additional 271.
The company also continues to deal with labor issues. Thousands of company employees in Southern California went on a brief strike in October demanding better pay, staffing and more affordable healthcare.
The company also said earlier this fall that it will trim its workforce by about 2,900 people, or less than 1% of its total.
In October, CVS Health also said that its third-quarter results would include a charge of around $1.2 billion tied to store closures next and its cost cutting plan.
The company’s stock climbed more than 10%, or nearly $6, to $61.25 Wednesday.
Shares of Woonsocket, Rhode Island-based CVS Health Corp. have tumbled about 28% through the first ten months of the year while the S&P 500 has advanced nearly 20%.