Business

Norwegian Cruise Line is canceling Israel stops into 2024.
The cruise company cut its profit forecast, also citing the Maui, Hawaii, wildfires.

The passenger cruise ship Norwegian Prima arrives at the French Mediterranean port of Marseille. (Photo by Gerard Bottino/SOPA Images/LightRocket via Getty Images)
Gerard Bottino | Lightrocket | Getty Images

Norwegian Cruise Line Holdings on Wednesday said it would cancel its stops in Israel this year and into 2024, as that country’s war with militant group Hamas continues to escalate.
The company slashed its full-year outlook, also citing the wildfires in Maui, Hawaii. Norwegian said it now expects adjusted per-share earnings of 73 cents for the year, compared with its prior forecast of 80 cents.

Shares of the company fell more than 3% on Wednesday.
The Israel conflict has also impacted broader cruises to the Middle East area beyond just its Israel stops, the company said on its earnings call. Last week, rival cruise line Royal Caribbean Group said canceled sailings to Israel will negatively impact its earnings for the year by 3 cents a share.
Norwegian remains optimistic that the Israel conflict will be short term, company executives said on the earnings call, so the company is bullish about the ability to return to the Middle East soon.
“One of the main strengths and differentiators in our industry is our ability to reposition our assets, which is what we’ve done with the heightened tensions in the Middle East,” CEO Harry Sommer said on the call. “The safety and well-being of our guests and crew members are without a doubt our number one priority.”
The cruise company also the wildfires in Maui forced Norwegian to modify some August itineraries. Though regular stops resumed in September, the company said it experienced a slowdown in bookings – which has since improved to almost normal levels – concentrated in the fourth quarter.
The company lowered its 2023 occupancy outlook to 102.6% from 103.5%, citing the disruptions affecting fourth-quarter performance. More

Southwest Airlines flight attendants would get 36% cumulative pay increases in a new five-year contract.
The deal is still subject to ratification by the union’s members.
The flight attendants are the latest aviation labor group to win proposed pay hikes after tense years-long negotiations.

Southwest Airlines Boeing 737-700 aircraft is seen landing at dusk time at Ronald Reagan Washington National Airport in Arlington, Virginia.
Nicolas Economou | Nurphoto | Getty Images

Southwest Airlines flight attendants would get 36% cumulative pay increases in a new five-year contract, according to details of the tentative agreement shared with crews Wednesday.
The flight attendants are the latest aviation labor group to win proposed pay hikes after fraught years-long negotiations for new labor details. Pilots, flight attendants and other airline workers argued they went years without raises after the Covid-19 pandemic derailed talks and had pressed companies for higher compensation and better work rules as travel returned.

The new labor deal includes a 20% raise in January at the deal’s signing and 3% after, plus retroactive raises going back to late 2019, according to a union message to flight attendants.
The deal is still subject to ratification by the union’s members. Flight attendants are scheduled to start voting on the tentative agreement mid-November.
If approved, Southwest will also increase pay for on-call flight attendants by 8% and provide overtime pay if they are called into work outside of their on-call window.
Pilots and flight attendants have repeatedly complained about unpredictable schedules and difficulties getting assignments during flight disruptions. It was particularly pronounced during Southwest’s meltdown during the end-year holidays in 2022.
Southwest declined to comment Wednesday. It is still negotiating with its pilots.Don’t miss these stories from CNBC PRO: More

ARMING UNCLE SAM is a great business. America’s latest defence budget earmarks $170bn for procurement and $145bn for research and development (R&D), most of which ends up with the handful of “prime” contractors, which deal directly with the Department of Defence (DoD). So will some of the $44bn in American military aid to Ukraine and some of the extra defence spending by America’s European allies, which account for 5-10% of the primes’ sales. Although those sums do not increase at the same rate as, say, corporate IT spending, leaving less room for spectacular gains, arms manufacturers are also shielded from eye-watering losses by huge, decades-long contracts.Thanks to a big shake-up at the end of the cold war, the industry is also highly concentrated. At a meeting in 1993, dubbed the “last supper”, William Perry, then President Bill Clinton’s deputy defence secretary, told industry bosses that excess capacity was no longer appropriate and that consolidation was in order. As a result, the ranks of the primes have thinned from more than 50 in 1950s America to six. The number of suppliers of satellites has declined from eight to four, of fixed-wing aircraft from eight to three and of tactical missiles from 13 to three.image: The EconomistGuaranteed custom and weak competition have helped American armsmakers’ shares comfortably outperform the broader stockmarket over the past 50 years. A paper published by the DoD in April found that between 2000 and 2019 defence contractors did better than civilian ones in terms of shareholder returns, return on assets and return on equity, among other financial measures. An increasingly unstable world means more money going to the armed forces—and to their suppliers. Total shareholder returns, including dividends, at primes such as General Dynamics, Lockheed Martin and Northrop Grumman rose when Russia invaded Ukraine in February 2022 and when Hamas attacked Israel on October 7th (see chart 1).This cosy oligopoly is now being challenged on two fronts. One is technological. As the tank battles on Ukrainian plains and in Gazan streets show, “metal on the ground” remains important. So do missiles, artillery shells and fighter jets. But both conflicts also illustrate that modern combat relies increasingly on smaller and simpler tactical kit, as well as communications, sensors, software and data. The second challenge is the Pentagon’s efforts to extract greater value for money from the military-industrial complex.Both developments undercut the primes’ big competitive advantages: their ability to build bulky kit and to navigate the mind-boggling procurement process. Cost-effective innovations, such as the Pentagon’s recently announced project “Replicator”, which aims to get swarms of small drones in the air, ASAP, require agile engineering for which the defence giants “are not innately organised”, as Kearney, a consultancy, delicately puts it. If they are to thrive in the new era, they will have to rediscover some of the innovative ways that helped them shape Silicon Valley in the decades after the second world war. So far, though, they are finding this difficult.It is easy to see why the primes (and their investors) like the current setup. The DoD reimburses the primes’ R&D expenses, and adds 10-15% on top of that. This “cost plus” approach spares the companies from funnelling lots of their own capital into risky projects, which offers security but reduces the incentive to deliver things on time and on budget. The project to build the F-35 fighter jet, which has accounted for more than a quarter of Lockheed’s revenues in the past three years, started life in the 1990s. It is running around a decade late and will cost American taxpayers up to $2trn over the lifetime of the aircraft.Once in production, newly developed large kit is sold at a fixed price, often for decades. The B-21 stealth bomber currently in development by Northrop Grumman will cost the Pentagon more than $200bn for 100 planes delivered over 30 years. The Columbia Class nuclear-submarine programme made by a subsidiary of General Dynamics will sail from the early 2030s until at least 2085.Past their primeThe Pentagon’s patience with this time-honoured business model is wearing thin. Last year’s national-defence strategy summed it up succinctly: “too slow and too focused on acquiring systems not designed to address the most critical challenges we now face.” Instead, it wants to “reward rapid experimentation, acquisition and fielding”. This is forcing the primes to think about how they could build fresh functionality atop their existing platforms, by adding new software, modules, payloads and the like, and to create production processes which can be modified to accommodate innovations.As Lockheed Martin’s chief executive, Jim Taiclet, recently acknowledged, soldiers expect seamless integration of sensors, weapons and systems for battle management such as joint all-domain command and control (JADC2), a new concept for sharing data between platforms, services and theatres. Contracting, building and continuously updating such systems will be a struggle for firms that have hitherto produced huge bits of hardware slowly and which, in the words of Steve Grundman of the Atlantic Council, a think-tank, are not “digital natives”.The primes face another problem. The technology the Pentagon has in mind is not inherently military, observes Mikhail Grinberg of Renaissance Strategic Advisors, a consultancy. Most of the defence giants do have civilian divisions—large ones in the case of Boeing, General Dynamics and Raytheon. But the Pentagon’s growing appetite for dual-use technologies means more competition from civilian industry, which is constantly devising new equipment, materials, manufacturing processes and software that could be used for military as well as peaceful ends.In 2020 General Motors won a contract to supply infantry vehicles. The carmaker has now teamed up with the American arm of Rheinmetall, a German weapons firm, in a deal to furnish military trucks. Other challengers are trying to muscle their way into the military-industrial complex, drawn by the DoD’s appetite for more diverse systems. Palantir, founded in 2003 to help avert more attacks like that of September 11th 2001, makes civilian and military software that processes the vast amounts of data that modern life and warfare throws up. Elon Musk’s SpaceX sends payloads, including military ones, into orbit and is being paid by the DoD to provide internet access to Ukrainian forces in their fight against Russian invaders.image: The EconomistBig tech is getting in on the action, too. Amazon, Google and Microsoft have targeted defence and security as promising markets, says Mr Grundman. Military procurement is a rare business large enough to make a difference to the tech titans’ top lines, which are counted in the hundreds of billions of dollars. The trio, along with Oracle, a smaller maker of business software, are already sharing a $9bn cloud-computing contract with the Pentagon. Microsoft also supplies the army with augmented-reality goggles in a deal that could eventually be worth $22bn.The Pentagon’s new approach is also attracting upstart rivals. Anduril, a startup founded in 2017 solely to serve military needs, has developed Lattice, a general-purpose software platform that can be swiftly updated and adapted to solve new problems. The company also makes a short-range drone called the Ghost, which can be operated by a couple of soldiers. Recognising that to win business quickly it needs to be vertically integrated, it has acquired a manufacturer of rocket engines and is developing an underwater autonomous vessel for the Australian navy.The wannabe primes and their financial backers still bemoan the barriers to new entrants. Brian Schimpf, Anduril’s boss, says that when working with the DoD you get “punched in the face every day”. SpaceX and Palantir both had to fight court battles just to be able to contest military contracts. In June Palantir signed an open letter with 11 other companies, including Anduril, and investors, imploring the Pentagon to remove obstacles to smaller contractors. The letter, which drew on proposals from the Atlantic Council, condemned “antiquated methods” that “drastically limited” access to commercial innovation.As the national-security strategy shows, the DoD seems keen to move away from procurement antiquity, for example by shifting more risk onto contractors through fixed-price, rather than cost-plus, development contracts. Such developments are causing palpitations among the primes. Boeing’s recent financial travails are partly a result of catastrophically underbidding in fixed-price contracts for the KC-46 tanker and Air Force One, which ferries around American presidents.In contrast, Anduril has dispensed with the crutch of cost-plus of its own accord, and is investing its own capital to make what it thinks the DoD will need. By clinging on to the old model, the primes may be depriving America of the 21st-century defence industry it needs. ■The Economist‘s A to Z of military terms explains modern warfare in plain English More

Halloween is over, and your local Spirit Halloween is getting ready to close.
As retail store closures have ramped up in recent years, Spirit Halloween opened a record number of new locations this year.
The chain is at work year-round securing its retail locations and selling through its website.

The facade of seasonal Halloween decor store Spirit Halloween at a shopping center in Dublin, California, on Aug. 23, 2018.
Smith Collection | Archive Photos | Getty Images

Halloween is over, and your local Spirit Halloween is about to become a ghost town.
It’s open Wednesday for clearance sales. On Thursday, it’ll close. But its work is not yet done. In fact, it continues all year.

The inventory carryover from season to season is “very minimal,” a representative for Spirit Halloween said. But costumes that were not sold and remain in good condition are stored for the next spooky season. Merchandise is also available to purchase all year through Spirit Halloween’s website.
As for the upward of 40,000 employees Spirit Halloween hired this season, a representative for Spirit Halloween said many are offered the ability to stay onboard with the company in a role at mall retailer Spencer’s Gifts, also owned by Spirit Halloween’s parent company, Spencer Spirit Holdings.
The Halloween chain is also nearly fully vertical, with Spirit Halloween handling all the “sourcing, design and manufacturing” itself, CEO Steven Silverstein said Monday on CNBC’s “The Exchange.” “Spirit has become such a phenomenon that no other market can keep up with it,” Silverstein said.

Spirit Halloween stores are known for “possessing” abandoned store fronts for the Halloween season and vanishing without a trace after the spooky holiday, making it a popular online meme whenever something shuts down.
The retailer opened a record 1,506 stores this season, up more than 50 stores from 2022, Spirit Halloween told CNBC. Locations have more than doubled since 2009, the company added.

Dead stores rise from the grave

But these store openings aren’t conventional. Since Spirit Halloween locations are only open a few months out of the year, the company does not have to build a new storefront or enter into a long-term lease to open its more than 1,500 locations.
A representative from Spirit Halloween told CNBC that the operations team works year-round to secure locations, often committing to a storefront as early as the spring and as late as the first week of October.
For landlords, it means someone is leasing their space, if even for a few months. Store closures have ramped up in recent years, as struggling retailers such as Bed Bath & Beyond, Rite Aid and CVS Pharmacy close large swaths of locations across the country. These become opportunities for Spirit Halloween, then, as the company pays to use the abandoned space for the Halloween season.
The store locator on its website even lists the previous occupant of the retail space before Spirit Halloween took over.

A screenshot of Spirit Halloween’s online store locator on Nov. 1, 2023, which shows what previously occupied the retail space.
Drew Richardson | CNBC

“We have built great relationships with our real estate partners over the years,” a representative for Spirit Halloween told CNBC. “It is a win-win for all parties involved.”
The company is also flexible in its preferences of retail space. Spirit Halloween considers locations in anywhere from strip centers to shopping malls, with square footage ranging between 5,000 and 50,000.
“No store is too large or too small,” the company told CNBC.
“It’s crazy how the stores just pop up,” said shopper Maria, 16, on Saturday. She and her friend Jane, 17, were waiting in a wrapped-around line outside a New York Sprit Halloween location. “Then they just disappear,” she said.
The store, in Manhattan’s Upper West Side, was opened in the former location of Harmon Face Values, a health and beauty retailer that was owned by now-bankrupt Bed Bath & Beyond. The location closed in February 2022.

Tricks, treats and travails

Outside a Spirit Halloween store in New York City on Oct. 31, 2023.
Drew Richardson | CNBC

It takes nine to 11 days for a Spirit Halloween store to go through the opening process, the company told CNBC. The short setup time gives the retailer a leg up over traditional retail openings, said GlobalData retail analyst Neil Saunders.
“Spirit Halloween doesn’t have to pay too much attention to things like flooring and construction, which are usually very time consuming when opening new shops,” Saunders said.
Opening in a temporary spot can have its drawbacks, however. Inside one Spirit Halloween location in New York City, customers are met with humid air and the hum of several plug-in fans.
“The AC went out my first week here,” said one of the location’s managers, who declined to be named since they weren’t authorized to comment. “Since we’re only here a couple months, I think it’s not worth fixing, in their opinion.”
After walking out of a packed Spirit Halloween location — a former CVS Pharmacy — in New York’s Brooklyn Heights neighborhood on Friday, a woman who wished only to be identified as Lana said it’s funny that the stores open in different spots every year.
“It can make them hard to find,” said Lana, 35. She had just purchased Spider-Man and marshmallow costumes for her two children.
“I’m from Russia and we don’t typically celebrate Halloween there,” she said. “So, I’m a casual celebrator of Halloween.”
But Americans take Halloween seriously. The National Retail Federation said Americans were expected to spend a record $12.2 billion on the spooky holiday this year, exceeding pre-pandemic levels.

Don’t miss these stories from CNBC PRO: More

Yum Brands reported better-than-expected earnings, but its quarterly revenue fell short of Wall Street’s estimates.
Pizza Hut’s same-store sales growth was weaker than expected, while KFC and Taco Bell outperformed expectations.
Yum’s same-store sales grew 6% in the quarter, helped by strong sales at Taco Bell’s U.S. locations and KFC’s international restaurants.

Sign for the food brand Pizza Hut on 30th May 2022 in Birmingham, United Kingdom. (photo by Mike Kemp/In Pictures via Getty Images)
Mike Kemp | In Pictures | Getty Images

Yum Brands on Wednesday reported third-quarter revenue that fell short of analysts’ expectations, hurt by weak same-store sales growth at Pizza Hut.
But the earnings report from its operator in China on Tuesday evening was more bleak. Yum China CFO Andy Yeung said that sales had softened in late September through October, hurting its fourth-quarter results. China is KFC’s largest market and Pizza Hut’s second-largest.

Still, Yum CEO David Gibbs said in a statement that the company expects it will outperform its long-term growth algorithm of 5% unit growth, 7% system sales growth and 8% operating profit growth.
Yum’s stock fell more than 1% in premarket trading, while Yum China’s tumbled more than 14%.
Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

Earnings per share: $1.44 adjusted vs. $1.28 expected
Revenue: $1.71 billion vs. $1.77 billion expected

The restaurant company reported third-quarter net income of $416 million, or $1.46 per share, up from $331 million, or $1.14 per share, a year earlier. Yum said a fair value remeasurement of its investment in its Indian franchisee boosted earnings per share by 5 cents, while foreign currency weighed on its earnings per share by 1 cent.
Excluding refranchising losses, certain tax benefits and other items, Yum earned $1.44 per share.

Net sales rose 4% to $1.71 billion. The company set a new record for digital sales growth, Gibbs said.
Yum’s same-store sales grew 6% in the quarter, helped by strong sales at Taco Bell’s U.S. locations and KFC’s international restaurants.
KFC’s overall same-store sales increased 6% in the quarter, beating StreetAccount estimates of 5.6%. The fried chicken chain’s international division reported same-store sales growth of 7%, boosted by strong growth in China, its largest market.
But in the U.S., its second-largest market, KFC saw flat same-store sales growth. The chain has struggled in its home country recently. It has lost market share to chicken leader Chick-fil-A and Restaurant Brands International’s Popeyes, which recently overtook KFC as the number-two chicken chain in the U.S.
Taco Bell reported same-store sales growth of 8%, topping StreetAccount estimates of 6.3%. The chain’s strong sales came largely from its U.S. restaurants, which saw strong consumer demand across income levels.
“If we break down the Taco Bell stores in the United States by income demographic,we see really consistent 2% to 3% transaction growth across all income levels,” Gibbs said on the company’s conference call.
Taco Bell’s expanding international division reported same-store sales growth of 1%.
Pizza Hut’s same-store sales rose just 1%, falling short of StreetAccount estimates of 1.7%. The pizza chain reported 2% same-store sales growth for international restaurants and flat same-store sales in the U.S.
Pizza Hut isn’t the only pizza chain that has struggled to win over U.S. consumers. Rival Domino’s Pizza reported a 0.6% drop in same-store sales during its third quarter. Still, Gibbs said that Pizza Hut has been taking market share from its U.S. rivals, thanks to strategies like leaning into late-night orders.
Yum’s total restaurant footprint grew 6% as it opened more than 1,100 locations during the quarter. More

District of Columbia Attorney General Brian Schwalb’s office filed a lawsuit against 14 of the district’s largest landlords and RealPage, a property management software company.
The lawsuit alleges that the landlords and RealPage colluded to illegally raise rents for tens of thousands of residents by collectively sharing their data with the company.
The office’s investigation found that the technology was used to set rents for more than 50,000 apartments across D.C. in violation of the district’s Antitrust Act.

In this photo illustration AvalonBay Communities, Inc. logo seen displayed on a smartphone and in the background. (Photo Illustration by Igor Golovniov/SOPA Images/LightRocket via Getty Images)
Sopa Images | Lightrocket | Getty Images

Washington, D.C., Attorney General Brian Schwalb’s office said Tuesday that it’s suing RealPage, a property management software company, and 14 of the district’s largest landlords for allegedly colluding to raise rents.
The complaint names several publicly traded real estate investment trusts, such as UDR, AvalonBay Communities and Equity Residential.

The companies shared data with RealPage, which then used an algorithm to artificially raise prices for more than 50,000 apartments across the city, costing renters millions of dollars in illegal rent hikes, according to a release from Schwalb’s office. The alleged collusion violates the District of Columbia’s Antitrust Act, the office said.

D.C. rent-fixing lawsuit

The 14 landlords named in the suit are:

Avenue5 Residential LLC
Bell Partners Inc.
Bozzuto Management Co.

Gables Residential Services Inc.
GREP Atlantic LLC
Highmark Residential LLC

Paradigm Management II LP

William C. Smith & Co. Inc.

The companies listed in the lawsuit didn’t immediately respond to a request for comment.
“Defendants’ coordinated and anticompetitive conduct amounted to a district-wide housing cartel,” Schwalb said in a statement. “At a time when affordable housing in D.C. is increasingly scarce, our office will continue to use the law to fight for fair market conditions and ensure that District residents and law-abiding businesses are protected.”
The full complaint can be read here.

RealPage’s price technology is used by more than 30% of apartments in multifamily buildings and more than 60% of apartments in large multifamily buildings across the district, according to the attorney general’s office. The software uses proprietary, nonpublic data and statistical models to estimate supply and demand and generate a price to maximize the landlord’s revenue.
The landlords listed in the complaint allegedly colluded to exchange competitive and sensitive data and adopt the rents set by RealPage’s “Revenue Management” technology, according to the attorney general. The lawsuit alleges the companies transformed the competitive real estate marketplace into one where they worked together at the expense of renters.
The attorney general’s office is also seeking to appoint a corporate monitor to stop any alleged anti-competitive colluding and is seeking financial penalties for the district and residents whose rents were allegedly illegally raised.
The D.C. lawsuit follows a Tuesday decision by a federal jury in Missouri that found the National Association of Realtors and some brokerages, including units of Berkshire Hathaway, liable for conspiring to artificially inflate home sales commissions. More

CVS reported third-quarter adjusted earnings and revenue that topped Wall Street’s expectations.
The results come one quarter after CVS launched a sweeping cost-cutting program as part of its push to transform from a major drugstore chain to a large health-care company.
CVS lowered its full-year unadjusted earnings forecast but maintained its guidance for adjusted full-year earnings per share.

A woman walks past a CVS Pharmacy in Washington, D.C., on Nov. 2, 2022.
Brendan Smialowski | AFP | Getty Images

CVS on Wednesday reported third-quarter adjusted earnings and revenue that topped Wall Street’s expectations, lifted in part by strong revenue from the company’s health services business. 
CVS booked sales of $89.76 billion for the quarter, up nearly 11% from the same period a year ago.

The company reported net income of $2.27 billion, or $1.75 per share, for the third quarter. That compares with a net loss of $3.40 billion, or $2.59 per share, for the same period a year ago. Excluding certain items, such as amortization of intangible assets and capital losses, adjusted earnings per share were $2.21 for the quarter.
Here’s what CVS reported for the third quarter compared to what Wall Street was expecting, based on a survey of analysts by LSEG, formerly known as Refinitiv:

Earnings per share: $2.21 adjusted vs. $2.13 expected
Revenue: $89.76 billion vs. $88.25 billion expected

CVS lowered its full-year unadjusted earnings forecast to a range of $6.37 to $6.61, down from a prior range of $6.53 to $6.75. However, it maintained its forecast on an adjusted basis, guiding to full-year adjusted earnings of $8.50 to $8.70 per share. 
The results come on the last day of a nationwide walkout by pharmacy staff from CVS, Walgreens and Rite Aid to protest what they call harsh working conditions that put both employees and patients at risk. CVS told CNBC last week that the company is engaging with staff to directly address any concerns that they might have. 
They also come one quarter after CVS launched a sweeping cost-cutting program as part of its push to transform from a major drugstore chain to a large health-care company. The company deepened that push earlier this year with its nearly $8 billion acquisition of health-care provider Signify Health and $10.6 billion deal to buy Oak Street Health, which operates primary care clinics for seniors.

CVS’s stock fell more than 3% in premarket trading Wednesday. Shares of CVS were down nearly 26% for the year through Tuesday’s close, putting the company’s market value at around $88 billion. 

Growth across business segments 

The company’s health services segment generated $46.89 billion in revenue for the quarter, a nearly 8% increase compared with the same quarter in 2022. The division includes CVS Caremark, which negotiates drug discounts with manufacturers on behalf of insurance plans, as well as health-care services delivered in medical clinics, through telehealth and at home.
Analysts had expected the division to bring in $45.19 billion in sales, according to estimates compiled by StreetAccount.
CVS said the increase was driven in part by growth in specialty pharmacy services, which help patients who are suffering from complex disorders and require specialized therapies. The company’s recent acquisitions of Oak Street Health and Signify Health also boosted the segment results, according to CVS.
The division processed 579.6 million pharmacy claims during the quarter, a slight decrease from the year-ago period due to a drop in Covid vaccinations and a Medicaid customer contract change. 
The company’s pharmacy and consumer wellness division booked $28.87 billion in sales for the quarter, up 6% from the year-ago period. That segment dispenses prescriptions in CVS’s retail pharmacies and provides other pharmacy services, such as diagnostic testing and vaccination. 
Analysts had expected the division to bring in $28.81 billion in sales, according to estimates compiled by StreetAccount.
Same-store sales grew 8.8% during the three-month period compared with the same time a year earlier, but not equally across the store. Same-store sales jumped 11.9% in the pharmacy division, but were down by 2.2% in the front of the store, in part as customers cut back on buying over-the-counter Covid tests.
CVS said a slight increase in prescription volume contributed to the segment’s revenue growth. The division filled 407.1 million prescriptions during the quarter, fractionally up from the same period a year ago. But same-store prescription volume jumped nearly 3.5%, excluding Covid vaccines.
The company counts 9,000 brick-and-mortar drugstores across the U.S.
CVS’s health insurance segment generated $26.30 billion during the quarter, a nearly 17% increase from the second quarter of 2022. That division includes plans by CVS-owned health insurer Aetna for the Affordable Care Act, Medicare Advantage, Medicaid, and dental and vision.
The insurance segment’s medical benefit ratio— a measure of total medical expenses paid relative to premiums collected — increased to 85.7% from 83.4% a year earlier. A lower ratio typically indicates that the company collected more in premiums than it paid out in benefits, resulting in higher profitability.
Analysts had expected that ratio to be 84.7%, according to StreetAccount estimates.
CVS will hold an earnings call with investors at 8 a.m. ET. More

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 7.86% from 7.90%
The ARM share of mortgage applications is now at the highest level in nearly a year.
Applications for a mortgage to purchase a home fell 1% for the week and were 22% lower year over year.

A house is for sale in Arlington, Virginia, July 13, 2023.
Saul Loeb | AFP | Getty Images

As mortgage rates hover near the highest level in more than two decades, homebuyers are turning to riskier mortgage products to help them get into a home.
Last week, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 7.86% from 7.90%, with points falling to 0.73 from 0.77 (including the origination fee) for loans with a 20% down payment, according to the Mortgage Bankers Association. That is still 80 basis points higher than the same week one year ago.

Adjustable-rate mortgages, which are considered riskier because the rates are fixed for shorter terms, offer savings. The average contract interest rate for 5/1 ARMs decreased to 6.77% last week.
“As higher rates continue to impact affordability and purchasing power, ARM loans increased almost 10 percent last week and continued to gain share, growing to 10.7 percent of all applications,” said Joel Kan, an MBA economist.
The ARM share of mortgage applications is now at the highest level in nearly a year.
Overall, mortgage demand, however, continues to slide. Applications to refinance a home loan fell 4% for the week, seasonally adjusted, and were 12% lower than the same week one year ago.
Applications for a mortgage to purchase a home dropped 1% for the week and were 22% lower year over year.

“The impact of higher rates continued to be felt across both purchase and refinance markets. Purchase applications decreased to their lowest level since 1995 and refinance applications to the lowest level since January 2023,” Kan added.
Markets now await news from the Federal Reserve on Wednesday to see if there will be any relief from higher interest rates. More