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Aetna's Profit Edges Higher

Source: WSJ

Posted on 25 Oct 2012 by Neilson

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AetnaAetna Inc. reported a 1.8% rise in third-quarter earnings as higher premiums for its health plans boosted revenue. The insurer also appeared to benefit from continued light traffic in doctors' offices and hospitals.

Aetna on Thursday pointed to improved underwriting margins in its commercial and Medicare businesses. Despite handily topping Wall Street forecasts for the quarter, Aetna modestly boosted its full-year operating earnings estimate to about $5.10 a share from a July forecast of $5 to $5.10 a share.

Though there are some signs that use of health-care services has picked up after a recession-induced slump, quarterly reports from health insurers and hospitals thus far suggest usage remains relatively light. Analysts said Aetna posted a lower-than-expected ratio of premiums used to pay patient medical costs.

The ratio was 80.7% in the third quarter, down from 82.4% in the second quarter. The number was up from 78.9% a year earlier amid a smaller benefit from excess reserves set aside to cover expected patient claims.

Sanford Bernstein analyst Ana Gupte said Aetna's ratio was another data point supporting stable fundamentals in the managed-care sector and weak health-care usage in the commercial and Medicare businesses.

Aetna reported a third-quarter profit of $499.2 million, or $1.47 a share, up from $490.4 million, or $1.30 a share, a year earlier. Per-share earnings benefited from Aetna's heavy stock buyback activity earlier this year.

Excluding items such as debt-extinguishment and acquisition-related costs, the company said per-share operating earnings rose to $1.55 from $1.40. Revenue, excluding capital gains, jumped 6% to $8.9 billion.

Analysts polled by Thomson Reuters had forecast a decline in earnings to $1.34 a share on revenue of $8.96 billion.

The company also said it already has reached its full-year target for about 18.2 medical members, up 149,000 from the second quarter, although down from last year. The company is planning to add more than five million additional members through its planned purchase of Coventry Health Care Inc. in cash-and-stock deal valued at $5.7 billion when it was announced in August.

Aetna has said the deal should close in mid-2013 pending approval from regulators and Coventry shareholders.