CVS replaces CEO, pulls profit forecast as investor pressure mounts
Adds background and details on medical costs in paragraphs 3 to 6
Oct 18 (Reuters) -CVS Health CVS.N replaced CEO Karen Lynch with company veteran David Joyner on Friday and withdrew its 2024 profit forecast, as the struggling healthcare conglomerate seeks to turn around its fortunes amid rising investor pressure.
Shares fell 11% in premarket trading, adding to this year's losses, as CVS also forecast quarterly adjusted profit below estimates. Shareholders have become increasingly nervous about repeated profit forecast cuts this year as its drugstores face reimbursement pressures and high costs hit the health insurance industry.
Investor GlenviewCapital saidearlier this month it was working with CVS to help improve operations as the company facesone of the most challenging periods in its six-decade history.
Investment firm Sachem Head Capital Management built a new stake in CVS during the second quarter, according to a regulatory filing in August, amid speculation among fund managers that an activist investor may swoop in to push for changes. nL1N3K117Z
Lynch stepped down from her position in agreement with CVS Health's board, the company said. Joyner, who is the president of the company's pharmacy benefit manager CVS Caremark, takes over as president and CEO from Friday.
"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," said Chairman Roger Farah.
CVS forecast third-quarter adjusted profit of $1.05 to $1.10 per share, much lower than the average of analysts' estimates of $1.70, according to data compiled by LSEG.
Costs for insurers providing Medicare plans - available forpeople aged 65 years and above and those with disabilities - have soared in the last yeardue to sustained high demand from olderadults for healthcare services.
CVS's third-quarter medical care ratio, thepercentage of premiums spent on medical care, is significantly higher at 95.2% than estimatesof 90.95%.
Founded in 1963, CVS has its roots in retail pharmacy and operates more than 9,000 stores mainly in the U.S., but sales in that segment have lagged expectations due to declines in reimbursement rates and the prices of generic drugs.
Inflation has also taken a toll on its front-end retail stores, resulting in several closures over the last few years.
The Wall Street Journal first reported the news of Joyner's appointment on Friday.
Reporting by Leroy Leo and Sriparna Roy in Bengaluru; Editing by Maju Samuel and Devika Syamnath
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