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August 1, 2025 • 4 min read
CVS Health recently released its second-quarter 2025 financial results, offering a detailed look into the performance of the healthcare giant. By digging into its latest 10-Q filing, we can see a mixed picture: while the company's top line continued to expand, its profitability faced a major setback.
For those unfamiliar, CVS Health is a diversified healthcare company operating across three core segments: health insurance via its Health Care Benefits segment (which includes Aetna), pharmacy benefit management (PBM) through its Health Services segment, and its well-known retail stores in the Pharmacy & Consumer Wellness segment.
In the second quarter of 2025, CVS Health reported total revenues of $98.9 billion, a healthy 8.4% increase from $91.2 billion in the same quarter last year. This growth was driven by higher revenue across all of its business segments.
However, the profit story was starkly different. Net income attributable to CVS Health fell by 42.3% to $1.02 billion, down from $1.77 billion in Q2 2024. This brought diluted earnings per share down to $0.80 from $1.41 a year ago.
The flow diagram below illustrates how the company's massive revenues were pared down by costs and expenses to arrive at its final net income for the quarter.
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Before we dive into what drove the profit decline, it's worth noting a key feature of CVS's accounting: large intersegment eliminations. Due to its integrated structure, CVS's divisions do a lot of business with each other. For instance, its PBM (Health Services) manages drug benefits for its insurance arm (Aetna), which are then filled at its own retail pharmacies (Pharmacy & Consumer Wellness).
To avoid double-counting this internal activity, CVS removes these transactions when reporting its consolidated results. In Q2, this amounted to a $17.5 billion elimination from segment revenues and a corresponding $17.2 billion elimination from cost of revenue. These adjustments are crucial for understanding the company's true revenue from external customers and highlight the immense scale of transactions within the healthcare giant.
So, what caused this significant drop in profit despite rising sales? A deeper look into the segment results reveals the primary cause.
The main driver behind the profit decline was a pre-tax $833 million legacy litigation charge. According to the filing, this was related to "two court decisions associated with its past business practices" and primarily impacted the operating income of the Health Services and Pharmacy & Consumer Wellness segments.
Here’s a breakdown of how each segment performed:
Health Care Benefits: This segment was the clear bright spot. The insurance arm, which includes Aetna, saw revenues climb 11.6% to $36.3 billion. More impressively, its adjusted operating income jumped 39.4% to $1.31 billion. The segment's Medical Benefit Ratio (MBR)—a key metric showing the percentage of premium revenue spent on medical claims—remained relatively stable at 89.9%, up slightly from 89.6% last year.
Health Services: This PBM segment grew revenues by 10.2% to $46.5 billion. However, its adjusted operating income fell 17.8% to $1.58 billion, suggesting some underlying margin pressure beyond the one-time legal charges.
Pharmacy & Consumer Wellness: The retail business posted strong revenue growth of 12.5% to $33.6 billion, fueled by a 15.1% increase in pharmacy revenue. Front-store sales grew a modest 1.6%. While the segment's GAAP operating income was hit hard by the litigation charge, its adjusted operating income still grew 7.6% to $1.34 billion.
Beyond the income statement, two other points are worth noting. Cash flow from operations for the first six months of the year decreased to $6.5 billion from $8.0 billion in the same period last year, a change the company attributes to the timing of payments and receipts.
Furthermore, CVS did not repurchase any common stock during the quarter, despite having $11.5 billion remaining in its authorized buyback programs. This pause could signal a strategic decision to conserve cash in light of the significant litigation costs and other financial pressures.
In conclusion, while CVS Health's revenue engine continues to perform well, its Q2 profitability was derailed by a substantial legal expense. The underlying business performance shows a strong Aetna insurance division, but also highlights margin challenges in the pharmacy services segment. Investors will be watching closely to see how the company navigates these legal and financial headwinds in the quarters ahead.
Last updated: August 1, 2025