CVS Health falls after leadership transition, Q3 earnings miss

Update 7.04 AM EST: Adds comments from CVS

Shares of CVS Health (NYSE:CVS) sold off in the premarket on Friday after the pharmacy chain operator announced a new chief executive and provided preliminary Q3 financials that fell short of Wall Street forecasts.

Woonsocket, Rhode Island-based CVS said David Joyner, a longtime executive, was appointed as the company’s new CEO on Oct. 17, replacing Karen Lynch, who has agreed to resign in agreement with the board of directors.

CVS (CVS) shares fell ~8% after The Wall Street Journal first reported the news. Its rival pharmacy chain Walgreens Boots Alliance (WBA) lost ~2%.

Currently, an executive vice president and the head of the company’s pharmacy-benefit manager, CVS Caremark, Joyner, is also expected to become CVS’ president.

The company said Roger Farah, the Current Chairman of its Board, will now be Executive Chairman.

“The Board believes this is the right time to make a change, and we are confident that David is the right person to lead our company for the benefit of all stakeholders, including customers, employees, patients, and shareholders,” Farah noted.

In connection with the leadership change, CVS issued preliminary guidance for Q3 indicating GAAP diluted earnings per share of $0.03-$0.08 and non-GAAP EPS of $1.05-$1.00, which fell short of $1.70 in the consensus.

The company attributed the earnings miss to a roughly $1.1B charge related to its Medicare and Individual Exchange businesses. The expense, which accounted for premium deficiency reserves (PDRs), lowered Q3 adj. EPS by $0.63, CVS said, adding that its Q4 results can benefit when PDRs are released in that period.

Nearly $1.2B restructuring charge related to upcoming store closures and cost-saving measures has also impacted GAAP earnings.

CVS (CVS) disclosed higher-than-expected medical cost trends in the quarter and noted that its Medical Benefit Ratio for Q3 could reach 95.2%, including a 220-basis point impact from PDRs.

In light of these updates, the company pulled its prior guidance and pledged to give more details at its Q3 earnings call on November 6, 2024.