Elevance Health (ELV) delivered a disappointing Q3 2024 earnings report, falling short of analyst expectations on both earnings per share (EPS) and key metrics. The company reported adjusted EPS of $8.37, significantly below the consensus estimate of $9.67, and guided full-year adjusted EPS to $33, well below previous guidance of at least $37.20. This sharp miss, coupled with weaker-than-expected outlook, sent the stock tumbling 10% in pre-market trading. Revenue, however, came in stronger than expected, with total revenue reaching $45.11 billion, beating the estimate of $43.9 billion, driven by growth in premium and product revenue.
Elevance’s Q3 results were impacted by higher-than-anticipated benefit expenses. The benefit expense ratio rose to 89.5%, higher than the 87.6% analysts expected, due in part to the mismatch between Medicaid rates and the higher acuity of members. This higher expense burden weighed heavily on the company’s margins. Additionally, medical membership fell to 45.76 million, missing the expected 46.17 million, as the company experienced attrition in its Medicaid business due to eligibility redeterminations.
On the revenue side, Elevance's premium revenue of $36.81 billion surpassed estimates of $35.67 billion, while product revenue hit $5.89 billion, above expectations of $5.55 billion. This revenue strength was driven by higher premium yields in its Health Benefits segment and growth in CarelonRx product revenue. However, Medicaid membership attrition weighed on overall membership figures. The Health Benefits segment reported operating revenue of $38.28 billion, exceeding the $37.08 billion consensus, highlighting the firm’s ability to drive revenue despite challenges.
The company's operating performance was also bolstered by better-than-expected net investment income, which came in at $551 million, beating the estimate of $502.3 million. However, despite revenue strength, the higher benefit expense ratio and medical membership declines took a toll on overall profitability. Elevance's operating gain for the Health Benefits segment totaled $1.6 billion, impacted by an unfavorable shift in Medicaid membership, partially offset by premium rate increases and cost management efforts.
Elevance’s guidance for 2025 added further pressure on the stock, as the company forecast mid-single-digit growth for adjusted EPS, signaling tempered growth expectations amid continued headwinds in the Medicaid space. The company is facing the challenge of managing higher acuity members, rising benefit expenses, and membership declines in certain Medicaid states, which have impacted its overall performance and outlook.
Despite the challenges in its Medicaid business, Elevance highlighted proactive steps to manage costs and improve operating efficiency. The company reported an operating expense ratio of 11.8%, an improvement of 110 basis points year-over-year. Excluding adjustment items, the operating expense ratio was 9.6%, reflecting disciplined cost management in response to rising expenses in other areas of the business.
In conclusion, Elevance’s Q3 2024 results reflected both strengths and weaknesses. While the company saw strong revenue growth driven by premium yields and product performance, it struggled with higher-than-expected benefit expenses and declining Medicaid membership. The company’s lowered EPS guidance for 2024 and tempered outlook for 2025 raised concerns about its ability to navigate the challenges in the Medicaid space, despite ongoing cost management efforts.