The managed-care company, based in Louisville, Kentucky, boosted its full-year earnings forecast after posting second-quarter earnings well ahead of Wall Street's expectations, although it is also planning to increase spending to market its Medicare offerings and in other areas.
The company's "high quality" results and guidance boost should reassure investors that competitor WellPoint Inc. had a company-specific issue with high-cost seniors in its second-quarter report last week, Goldman Sachs analyst Matthew Borsch said. Also, Humana's report counters signs from some smaller insurers last week that medical-cost trends are stabilizing, while showing that an earnings-boosting theme for the managed-care sector remains intact.
Humana's medical-cost ratio, the percentage of premium revenue used to pay medical bills, edged up to 82.2% from 82% a year earlier. But the company benefited less in the recent quarter than a year ago from overestimates on how much money would be needed for patient claims, and Susquehanna Financial analyst Chris Rigg said the recent quarter's ratio was lower than he expected.
The insurer--one of the nation's biggest providers of privately run Medicare Advantage health plans for seniors--reported a second-quarter profit of $460.3 million, or $2.71 a share, up from $340.1 million, or $2 a share, a year earlier. Excluding write-downs and favorable reserve developments, earnings were up at $2.50 from $2.11.
Analysts surveyed by Thomson Reuters had forecast earnings of $2.06 in the recent quarter.
Revenue increased 8.1% to $9.28 billion thanks to growth at the company's retail and health-and-wellbeing businesses, which added closely held health-care provider Concentra for about $790 million late last year. Analysts recently expected revenue of $9.35 billion.
Total medical membership grew 6.6% to 11 million from 10.3 million a year earlier and was up 80,900 during the quarter.
For the year, Humana raised its per-share earnings estimate amid expectations for lower projected benefit ratios in its retail and employer group businesses, partially offset by higher projected Medicare sales and marketing spending. It now expects $7.50 to $7.60 a share, compared with its increased May earnings projection of $6.70 to $6.90. The company affirmed its 2011 revenue view.