Earnings Preview: Humana to post 3Q earnings

LOUISVILLE, Ky. - Health insurer Humana Inc., whose robust government business has helped produced healthy profits, reports third-quarter results on Monday. Here are key developments related to that period.

OVERVIEW: Much of the attention from health insurers, and their investors, has focused on Washington, D.C., and the efforts to overhaul the country's health care system. Health insurers have watched nervously as Congress considers a provision for a government-sponsored insurance plan that would compete with them.

Humana's profits have been fueled by its strong government business, led by Medicare Advantage offerings, while its commercial segment has endured sluggishness linked to a badly weakened economy.

The company based in Louisville, Ky., has about 1.4 million Medicare Advantage enrollees, and the program accounts for about half the company's revenue. Medicare Advantage plans are government-sponsored, privately run programs for seniors that offer comprehensive health coverage.

Membership in Humana's stand-alone Medicare prescription drug plans has fallen in the past year, due mainly to low-income seniors joining other plans as well as some members switching to Medicare Advantage plans.

Reflecting the sour economy, pretax earnings in Humana's commercial segment fell 53 percent in the second quarter, due mainly to lower investment income and lower income from its small group business.

Still, Humana posted a robust profit in the second quarter, based on its strong government business. The company reported net income of $281.8 million, or $1.67 per share, for the quarter, compared with earnings of $209.9 million, or $1.24 per share, a year ago. Revenue jumped 8 percent to just under $7.9 billion.

BY THE NUMBERS: Analysts surveyed by Thomson Reuters expect, on average, earnings of $1.77 per share on $7.82 billion in revenue in the third quarter.

Humana earned $1.49 per share in the third quarter a year ago, which excluded a loss of 40 cents per share related to a downturn in its investment and securities lending porfolios and the sale of distressed financial institution securities. Humana posted quarterly revenue of $7.15 billion.

ANALYST TAKE: Oppenheimer analyst Carl McDonald said in a research note that he expects Humana to report earnings of $1.80 per share, 3 cents better than the Wall Street consensus.

McDonald predicted that the sector's Medicare-focused plans "are poised to have a very strong quarter." He said that the sector's commercial plans are facing "cost pressure," and that "a big drop in membership this year will make it difficult for most plans to show any commercial earnings growth in 2010."

He said anticipation for the industry's earnings season isn't as great as normal — "mainly because everyone seems to realize that earnings will matter for about a day, and then the focus will immediately turn back to the machinations of Congress as soon as all the major plans have reported."

WHAT'S AHEAD: A strong performance by Humana's government business will be crucial to offset expected softness in its commercial sector amid the weak economy.

STOCK PERFORMANCE: Humana shares rose $4.78, or 15 percent, to $37.30 in the third quarter. The Standard & Poor's 500 index rose 14 percent during the same time.

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