Medicare Advantage drives Humana profit above expectations
LOUISVILLE, Ky.—Health insurer Humana Inc. reported a 12.5 percent rise in its first-quarter profit Monday as growth in its Medicare Advantage, military and commercial businesses more than offset problems in its stand-alone Medicare prescription drug plans.
The results beat Wall Street expectations, and the company raised full-year earnings-per-share projections.
The Louisville-based company earned $80.17 million, or 47 cents per share, in the three months ended March 31 compared to $71.2 million, or 42 cents a share, in the year-ago period.
Revenue rose 12 percent to $6.96 billion from $6.2 billion.
Analysts surveyed by Thomson Financial had expected profit of 45 cents per share on revenue of $6.94 billion.
Humana shares rose $1.50, or 3.3 percent, Monday to close at $46.38.
"Our Medicare Advantage and commercial progress was particularly strong in the first quarter," said Michael B. McCallister, Humana's president and chief executive officer.
The Medicare Advantage plans offer comprehensive health coverage.
As expected, Humana's government segment took a pretax loss of $3.2 million in the first quarter. The decline primarily reflected about $100 million in incremental expenses associated with the company's stand-alone Medicare prescription plans. Last month, Humana sharply lowered its first-quarter estimate due to higher-than-expected claims in those prescription plans.
In a conference call Monday with industry analysts, McCallister said Humana responded "swiftly and effectively" to correct the problem before designing prescription plans for 2009. Those stand-alone prescription offerings represent 11 percent of Humana revenue.
"Medicare continues to be a strong driver for us, and we firmly believe that our 2009 results will continue the growth trajectory" from the recent past, McCallister said.
Humana said the problems with the stand-alone prescription plans were substantially offset by improved performance in its Medicare Advantage and military services business.
Medicare Advantage premiums totaled $3.17 billion in the first quarter, up 15 percent from a year ago. Medicare Advantage membership was up 14 percent from a year ago.
Military services premiums and administrative fees increased $89.7 million to $831.2 million for the first quarter.
McCallister forecast solid improvement in all of Humana's lines of business except its stand-alone prescription drug plans through 2008 and beyond. He predicted those prescription plans will return to profitability in 2009.
Meanwhile, pretax earnings for Humana's commercial segment reached $127.2 million in the first quarter, compared to $94.4 million a year ago.
Commercial segment medical membership grew by 201,200 members to nearly 3.46 million at quarter's end, up 6 percent from a year ago.
Goldman Sachs analyst Matthew Borsch said in a note to investors Monday morning that Humana's results on balance "should be a relief" after the company slashed its first-quarter and full-year earnings estimates due to the higher claims in its stand-alone prescription plans.
Humana on Monday raised its earnings-per-share projection for the full year to a range of $4.10 to $4.35 per share on revenue of $28 billion to $30 billion, reflecting fewer shares outstanding and a lower tax rate. The company last month said it expected full-year earnings to range between $4 to $4.25 per share.
In a follow-up note later Monday, Borsch reiterated his buy rating on Humana shares and suggested Humana is better positioned than some of its competitors.
"Specifically, if cyclical pressures increase this year, we believe Humana shares will hold up better than other core names, given its earnings are driven mainly by Medicare with significantly less exposure to commercial risk," Borsch wrote.
Borsch had cautionary comments for Humana as well, which he said were due to a decline in reserves during the quarter, weak cash flow and reliance on non-operating items.
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AP Business Writer Jennifer Malloy contributed to this report.
