CVS Health Corp Reported solid Q1’26 with growth in Health Care Benefit Segment. Showcasing Continued Turnaround Post FY’24 Bottom

CVS Health Corp Q1’26 financial performance was solid, supported by revenue growth, improved adj. operating income margin, strong free cash flow generation, lower leverage and robust liquidity. Management raised it FY’26 guidance following continued reversal in Health Care Benefit business

Financial Performance Snapshot

Key Highlights:

• Revenue increased by 6.2% YoY to $100.4B, driven by growth across segments

• Health Care Benefit revenue prior to elimination was $36.0B (+3.3% YoY) with higher adj. operating margins from 5.7% in Q1’25 to 8.5%, driven by continued turnaround activities at Aetna Inc

• Total leverage below 4x (as of Q1’26: 3.9x) after peaking at 4.5x in FY’25, expected to decline further  

  
  

Q1’26

Revenue

• Total Revenue increased to $100.4B (+6.2% YoY) driven primarily by growth in Health Services (+11% YoY), Health Care Benefits (+3.3% YoY) and Pharmacy & Consumer Wellness (+0.2% YoY) segment, prior to intersegment elimination

Health Services Segment (41.5% of Q1’26 total revenue (prior elimination)

• Revenue was $48.2B (+11% YoY), driven by pharmacy drug mix and brand inflation, partially offset by pharmacy client price improvements

• Adjusted Operating income was $1,489M (-7.1% YoY) with margin of 3.1% vs 3.7% in Q1’25, margin decline was driven by pharmacy client price improvements, partially offset by improved purchasing economics and pharmacy drug mix

Health Care Benefits ([HCB], 30.9%)

• Revenue was $36.0B (+3.3% YoY), driven primarily by increase in the Government business, partially offset by a decline, due to Company’s exit from individual exchange business in 2026

• Medical Benefit Ratio (MBR), improved to 84.6% vs 87.3% in Q1’25, driven by improved performance in Government business and absence of the $448M of premium deficiency reserve (PDR) recorded in Q1’25

• Adj. Operating income was $3.0B (+52.6% YoY) with margin of 8.5% vs 5.7% in Q1’25, driven by premium rate increases, partially offset by YoY loss of ~1.1M members

  
  

Pharmacy & Consumer Wellness (27.5%)

• Revenue was $32.0B (+0.2% YoY), driven by pharmacy drug mix, higher prescription volume which includes Rite Aid asset acquisition volume and brand inflation. These increases were largely offset by regulatory-related price reductions, impact of recent generic drug introductions & pharmacy reimbursement pressure

• Adj. Operating income was $1,197M (-8.8% YoY) with margin of 3.7% vs 4.1% in Q1’25, margin decline was drive by pharmacy reimbursement pressure, business investments expenses, lower contributions from seasonal illnesses and greater weather disruption

HCB Medical Membership

• Consolidated Medical Membership has declined to 26k members from 27.1k members, a drop of -1,074 members YoY, highest decline was in Commercial business (-877 YoY) followed by Medicaid (-91 YoY).

  • The decline was driven by Company’s intentional steps to sacrifices membership and prioritizing profitable (margin improvement in HCB). Aetna Inc, CVS Health Corp subsidiary represents HCB business, increased its premiums while cutting supplemental benefits in the offered plan this restructuring led to higher HCB margin at cost of membership decline

Credosh Adj. EBITDA

• Credosh adj. EBITDA came in at $5.8B (+12.0% YoY), with margin of 5.8% vs 5.5% in Q1’25

FCF

• Generated free cash flow of $3.1B, post capex of $(849M), cash interest of $(774M), cash taxes of $(1,072M) and working capital source of $2.0M

  • Working capital was low compared to historical Q1 due to drag from other liabilities $(196M), accounts payable & pharmacy claims $(562M), more than offset by inventories $1,476M and lower accounts receivable $(1,205M) compared to last year

Leverage and Liquidity (as of Mar’26)

• Gross/net leverage of 3.9x/3.3x and liquidity of ~$20.6B, including cash & cash equivalents of $11.8B and ~$8.8B availability in revolver and FHLBB Cash Advances

Guidance

• Total revenue expected to be of ~ $405B (+0.7% YoY), driven by growth in both Health Care Benefits and Pharmacy and Consumer Wellness segments

• Consolidated Adj. operating income expected to be ~15.7B at midpoint (+8.7% YoY) with margin of 3.9% vs 3.6% in FY’25

  • Health Care Benefit Segment adj. operating income is expected to be ~ $4.2B at midpoint (+41.9% YoY), driven by continues cost efficiency

Other Operating Metrics

Definitions

Medical Membership: Number of members covered by the Health Care Benefits segment’s Insured and ASC medical products and related services at a specified point in time

Pharmacy Claims Processed: Represents the number of prescription claims processed through the Company’s pharmacy benefits manager and dispensed by either its retail network pharmacies or the Company’s mail and specialty pharmacy

Same Store Sales: Represent the change in revenues in the Company’s retail pharmacy stores that have been operating for greater than one year