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CVS Health CEO Lynch steps down as the drugstore chain struggles to right its path

caption: Earlier this year CVS Health cuts its 2024 profit forecast due to an increase in Medicare-related costs.
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Earlier this year CVS Health cuts its 2024 profit forecast due to an increase in Medicare-related costs.
AP


CVS Health CEO Karen Lynch has stepped down, with company shares sinking 19% this year and the health-care giant struggling on several fronts.

Company shares tumbled again Friday after CVS Health also warned of disappointing third-quarter earnings and said investors should not rely on guidance for that quarter that was provided in August.

Lynch will be replaced by veteran CVS Health executive David Joyner, who will attempt to steer the company through rising costs to its health-insurance business, slumping drug-store sales and growing investor pressure. All major pharmacy chains are attempting to navigate a drastically changed landscape, facing competition online and elsewhere.

Leerink Partners analyst Michael Cherny said the leadership change was unexpected, though he understood the rationale behind it “following another quarter of underperformance.”

“It is hard, given the operational and stock underperformance, to say a change at the top is undeserved,” he said in a research note.

With Lynch’s departure, there are now 45 female CEOs in the S&P 500, representing about 9% of all CEOs, according to the executive data firm Equilar.

CVS Health runs one of the nation’s largest drugstore chains and a huge pharmacy benefit management business that operates prescription drug coverage for employers, insurers and other big clients. It also covers nearly 27 million people through its Aetna insurance arm.

The company cut its financial expectations for a third time this year in August, hurt by growing claims from its Medicare Advantage coverage, and Lynch said then that she was taking over leadership of the insurance segment.

Her predecessor in the insurance wing, former Humana executive Brian Kane, left the company about a year after his arrival.

Barclays analyst Andrew Mok said Friday that the struggling insurance arm now has a leadership gap that the company will have to address in the near term.

CVS Health said Friday that it still was struggling with higher medical costs in that segment.

The company has been operating “well below its potential and has fallen short in its investment and actuarial approach in recent years,” Glenview Capital Management said earlier this month.

The hedge fund, which holds a stake in CVS Health, said it was offering “suggestions to enhance the governance, culture, efficiency, sustainability and growth of CVS Health.”

Rising claims from the company’s Medicare Advantage coverage have hurt CVS Health for much of this year and contributed to it its repeated outlook cuts. Medicare Advantage plans are privately run versions of the federal government’s coverage program mainly for people age 65 and older.

CVS Health also said in August that it has been hurt by a drop in quality ratings for those plans and pressure from Medicaid coverage it manages in several states.

The Woonsocket, Rhode Island, company said Friday that it expects third-quarter adjusted earnings to fall between $1.05 to $1.10 per share. Analysts polled by FactSet predict earnings of $1.69 per share.

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