Humana Profit Falls, But Raises Full-Year Target
Health insurer Humana posted quarterly profit that beat estimates and lifted its 2008 forecast on Monday on better-than-expected results for its Medicare prescription drug plans for seniors, sending shares more than 4 percent higher.
High costs in the drug plans still dragged down Humana's profit, but the company had braced investors for such issues when it sharply reduced its full-year projections in March.
Analysts said on Monday that the company appeared to have been conservative with its prior outlook.
"Things aren't as bad as they thought or at least communicated in March," Stifel Nicolaus analyst Thomas Carroll said, adding that it was a "good quarter."
Shares of Humana , one of the largest U.S. providers of Medicare plans, have been hammered this year along with those of its rivals, as a raft of profit warnings and worries over a downturn hit investor confidence in the sector.
Health-insurer shares rose broadly on Monday, continuing somewhat of a rebound for the stocks during a mostly positive second-quarter reporting season.
For the quarter, Humana's net income fell to $209.9 million, or $1.24 per share, from $216.8 million, or $1.28 per share, a year earlier.
Humana, the fifth-largest U.S. health insurer by market value, previously said it expected second-quarter earnings of $1.15 to $1.20 per share. Analysts expected $1.18, according to Reuters Estimates.
Revenue rose 14 percent to $7.35 billion. Humana's membership in its full-service Medicare Advantage plans stood at nearly 1.35 million, up 19 percent from a year ago. The company has added 202,000 members so far this year, out of an expected 240,000 by year end.
Humana's overall consolidated benefits ratio, measuring the percent of premium revenue spent on health benefits, worsened to 85 percent from 83.4 percent a year ago, driven by higher drug claims.
Still, use of the drug plans by participants was less than the company initially anticipated. Humana said greater use of generic drugs also helped mitigate costs.
Humana sharply reduced its full-year expectations in March, blaming an error in designing benefits for one of its Medicare drug plans. But the company has insisted the problems were confined to this year and that results would rebound in 2009.
Goldman Sachs analyst Matthew Borsch said the second-quarter results bolster the company's position that its earnings issue has been limited to the drug-plan segment.
The Louisville, Kentucky-based company now anticipates full-year earnings per share in the range of $4.30 to $4.40, up from its previous guidance of $4.10 to $4.35.
The company also said on Monday it planned to acquire Cariten Healthcare for about $245 million to boost its presence in Tennessee.
Humana shares rose $1.85, or 4.1 percent, to $46.49 in morning trade on the New York Stock Exchange.
Before Monday's trading, Humana shares had fallen 41 percent this year, more than a 34 percent drop for the Morgan Stanley Healthcare Payor index .