(Updates to add analyst comments)
Humana Inc.'s (HUM) second-quarter earnings rose 34% as revenue
rose despite falling enrollment on strong gains at its Medicare
Advantage business, where profit surged 62%.
The Louisville-based health insurer also affirmed its 2009
outlook.
Humana shares, down 12% year to date but up 77% from its March
low, rose 6.6% Monday to $35.01 per share.
"Humana's 2Q09 results reflect significant improvement in the
government sector driven by higher margins in the Medicare and
[prescription drug plan] book of business," Credit Suisse Group
(CS) analyst Gregory Nersessian said, adding that the positive
momentum in the government segment was offset partially by
disappointing commercial segment results, hurt by membership
losses, higher administrative expenses and higher medical
costs.
Health insurers profits remain under pressure from rising
medical costs and falling enrollments, while companies expect
payments from their government plans to fall. The industry has been
trying to discourage Washington from establishing competing plans
as the health-care debate continues.
Humana was among three companies poised to lose Tricare federal
contracts to provide health coverage to U.S. military personnel in
11 southern states. Loss of the multibillion-dollar contracts
beginning April 2010 is likely to result in substantial drops in
revenue and profits as membership is likely to drop by 3 million.
Humana does a substantial amount of business within government
programs and has one of the industry's biggest Medicare efforts,
making it more vulnerable to next year's lower government
payments.
The company reported a profit of $281.8 million, or $1.67 a
share, up from $209.9 million, or $1.24 a share, a year earlier.
The company in April projected $1.65 to $1.70 per share, above
analysts' estimates at the time.
Revenue increased 7.5% to $7.9 billion. Analysts polled by
Thomson Reuters most recently were looking for $7.77 billion.
Humana's benefits ratio - the percentage of premium revenue used
to pay medical bills - declined to 83.3% from 85% a year earlier.
The company's total medical membership fell 10% to 10.3 million,
but was flat from the prior quarter.
At its smaller commercial business, pretax profit slumped 53%,
in part on lower investment income.
For the third quarter, the company expects earnings of $1.75 to
$1.80, while analysts were looking for $1.78. The company affirmed
its 2009 earnings outlooks.
Oppenheimer (OPY) analyst Carl McDonald noted that Humana's
medical claims payable rose $170 million sequentially, resulting in
a 1.5 day increase in days claims payable and suggesting a possible
strengthening of reserves.
"This increases our conviction in Humana's ability to meet or
beat EPS guidance in the second half of the year," McDonald
said.
-By Tess Stynes, Dow Jones Newswires; 212-416-2481;
tess.stynes@dowjones.com
(George Stahl contributed to this report)