Monday, health and supplemental benefit plans provider Humana Inc. (HUM), reported a 3% drop in profit for the second quarter, as expenses increased over 15% from last year. Consolidated revenues for the quarter, however, improved 14%. Humana provided guidance for the third quarter in line with Street expectation and lifted its fiscal year 2008 earnings forecast. The company also revealed an increase to its share repurchase program.
The Louisville, Kentucky-based company said second quarter earnings dropped to $209.90 million or $1.24 per share from $216.85 million or $1.28 per share reported in the same period last year. On average, 14 analysts polled by First Call/Thomson Financial expected second quarter earnings of $1.18 per share.
Results, however, exceeded management's guidance due to better-than-anticipated performance from the company's stand-alone Medicare Prescription Drug Plan or PDP offerings.
Consolidated second quarter revenues rose to $7.350 billion from $6.426 billion in the previous year, driven by higher average membership for the company's Medicare Advantage, Commercial medical and specialty products as well as higher premium yields for the Medicare Advantage products. Analysts estimated revenues of $7.14 billion for the quarter.
Revenue from premiums increased 14% to $7.106 billion, while Administrative services fees advanced 16% to $112.96 million. Investment income rose 12% to $80.82 million and Other revenue climbed 46% to $50.33 million.
Total Government Segment premiums advanced 13.4% to $5.345 billion. At the Commercial segment, total premiums increased 16.6% from last year to $1.760 billion.
Total operating expenses increased 15.4% to $7.007 billion from $6.071 billion in the previous year on benefits that rose 16.3% from last year as well as a 10.8% increase in selling, general and administrative expenses.
Year-to-date, earnings advanced to $290.07 million or $1.71 per share from $288.09 million or $1.70 per share reported for the same period in 2007. Consolidated revenues rose 13% to $14.31 billion from $12.63 billion in the prior year period.
As at June 30, Medicare Advantage membership grew 19% to 1,345,000 members. Commercial Segment medical membership rose 9% to 3,558,500.
Cash and cash equivalents at June 30, 2008 was $1.174 billion, while it was $1.688 billion at March 31, 2008. Investment securities for the periods were $4.195 billion and $3.954 billion, respectively.
Humana also said Monday that it signed a definitive agreement to purchase PHP Companies, Inc. from Knoxville, Tennessee-based Covenant Health for about $245 million in cash. The transaction is anticipated to close during the fourth quarter of 2008. The acquisition is not expected to materially affect Humana's earnings guidance for the fiscal year 2008.
Humana's board of directors also increased the company's share repurchase authorization up to $250 million, excluding the $92.8 million used year to date in connection with the previous authorization. The program has an end date of December 31, 2009.
Looking ahead, the company expects third quarter earnings in the range of $1.45-$1.50 per share. The Street currently estimates third quarter earnings of $1.17-$1.52 per share with a consensus of $1.36 per share.
Citing better-than-anticipated second quarter results, the company boosted its earnings guidance for 2008 to a range of $4.30-$4.40 per share from its previous guidance of $4.10-$4.35 per share. The Street currently expects earnings in the range of $4.08-$4.35 per share with a mean estimate of $4.20 per share for the year.
Michael McCallister, Humana's President and Chief Executive Officer observed, "We had a good quarter across all our lines of business and with our PDP issue playing out better than expected, we've raised EPS guidance for the year and are well positioned for a strong 2009."
On July 8, analysts at Credit Suisse reiterated their "Outperform" rating on Humana's stock, however, reduced the target price to $60 from $73.
Among others in the industry, UnitedHealth Group Inc. (UNH) on July 22 reported a 72% drop in its second quarter net income, hurt by legal costs associated with the settlement of lawsuits related to the company's historical stock option practices and employee severance costs. Total revenues, however, increased over 6% to $20.2 billion.
Health insurer Cigna Corp. (CI) on August 1 reported a 37% increase in second quarter profit, helped by a 23% growth in aggregate medical membership. Consolidated revenues for the quarter increased 11% to $4.86 billion from last year.
HUM is currently trading at $47.49, up $2.85 or 6.38%, on 6.54 million shares, compared to a 3-month average volume of 2.94 million shares. For the past year, the stock trended in the range of $33.45-$88.10.
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