In response to job reductions and underperforming stock, CVS announces its fresh CEO selection.
CVS withdrew its 2024 earnings prediction and advised investors against relying on the full-year projections released in August, citing increased medical cost burdens. Shares have dropped by nearly 20% this year and experienced a significant decrease following the announcement.
This turbulence stems from a difficult year for the corporation, which included tumbling stock prices, slow growth, and investor criticism, among other issues.
In August, escalating expenses at CVS' insurance division Aetna negatively impacted earnings, leading to the departure of then-president Brian Kane. In September, the Federal Trade Commission targeted large pharmacy benefits managers, including CVS subsidiary Caremark, alleging they artificially boosted insulin prices.
"We weren't surprised by the leadership change given the performance disappointments at CVS, particularly at Aetna's medical insurance business that Lynch previously oversaw," Julie Utterback, senior equity analyst at Morningstar, noted in a release. "However, investors might have wished for new blood from outside the organization."
Decreased reimbursement rates for prescription drugs have affected retail pharmacies, including Walgreens and Rite-Aid, causing declining profits and forcing pharmacies to close stores and cut jobs.
Earlier this month, CVS revealed plans to lay off 2,900 employees as part of its cost-reduction strategy. Over a four-year period, the company closed 244 stores, and in 2021, it announced plans to close an additional 900 stores. Meanwhile, competitor chain Walgreens is shuttering 1,200 stores due to competition from online pharmacies and larger retailers, another hurdle that pharmacies face.
CVS was also rumored to be considering the separation of its retail pharmacy division from its insurance division in response to pressure from activist investors in early October. However, the company seemed to reaffirm its belief in the value of its integrated model in its statement, with analysts suggesting that a split is unlikely.
"We believe our integrated model is effective. Our results need to demonstrate this more consistently," a CVS Health spokesperson said in a statement.
Joyner, who previously serves as president of CVS Caremark, takes over from Lynch, who resigned with the company's board of directors' approval.
Lynch had served as CEO since 2021 and guided the company through the Covid-19 pandemic, overseeing the in-store vaccination rollout. Under her tenure, the company also acquired Signify Health, which offers in-home medical services.
"This is the right time for a change, and we are confident that David is the proper person to run our company," Executive Chairman Roger Farah stated in a release.
CVS is scheduled to release its third-quarter earnings on November 6.
The turbulence in CVS's business this year has led to decreased profits and forced some retail pharmacies, like Walgreens and Rite-Aid, to close stores and cut jobs due to decreased reimbursement rates for prescription drugs. In response to the challenges, CVS announced plans to lay off 2,900 employees as part of its cost-reduction strategy.
