Aetna Q4 Profit Tops Estimates; Guides 2011 Above View - Update

Aetna AET 020411

Health insurance company Aetna Inc. (AET) reported Friday a rise in fourth-quarter profit, reflecting a decline in health care costs despite a drop in premium revenues. Earnings per share and revenues came in above analysts' consensus estimates. The company also provided full year 2011 operating earnings per share outlook, which is above market view.

Separately, Aetna said that it has increased its cash dividend and moved the company to a quarterly dividend payment cycle. The first quarterly dividend of $0.15 per share, to shareholders of record on April 14, will be paid on April 29. The company paid a $0.04 per share annual dividend on November 30, 2010.

The Hartford, Connecticut-based company provides health insurance products and related services. The offerings include medical, pharmacy, dental, behavioral health, group life, and disability plans.

For the fourth quarter, the company's net income increased to $215.6 million or $0.53 per share from $165.9 million or $0.38 per share in the previous year. In the preceding third quarter, Aetna's net income was $497.6 million or $1.19 per share.

Excluding certain items, operating earnings were $255 million or $0.63 per share, up from $178.6 million or $0.40 per share a year earlier. On average, 20 analysts polled by Thomson Reuters expected the company to report earnings of $0.62 per share for the quarter. Analysts' estimates typically exclude one-time items.

The company said the increase in operating earnings were largely due to higher commercial underwriting margins.

For the fourth quarter, after-tax net income margin was 2.5 percent, up from 1.9 percent in the prior year.

Ronald Williams, chairman of the company said, "Aetna's strong operating results in 2010 demonstrate the significant performance improvement we have made by remaining disciplined while focusing on customer needs. As it becomes even more imperative to address quality and affordability in health care, Aetna will play an increasingly important role."

Total revenues for the quarter declined 2 percent to $8.54 billion from $8.76 billion in the same quarter last year, mainly due to a decline in Health Care premium revenues. Twelve analysts estimated revenues of $8.40 billion for the quarter. Aetna's total revenues for the third quarter were $8.54 billion.

Health Care segment, which provides a full range of insured and self-insured medical, pharmacy, dental and behavioral health products and services, reported a 2 percent decrease in fourth-quarter revenues to $7.9 billion. Group Insurance total revenue, which includes net realized capital gains, was $509.4 million, down from $525.5 million in the prior year.

Health care costs for the quarter declined to $5.72 billion from $6.08 billion in the prior year.

For the full year ended December 31, the company's net income increased to $1.77 billion or $4.18 per share from $1.28 billion or $2.84 per share in the preceding year. Operating earnings were $1.56 billion or $3.68 per share, up from $1.24 billion or $2.75 per share in the prior year. Annual revenues marginally decreased to $34.25 billion from $34.76 billion a year ago.

As at December 31, medical membership totaled 18.47 million members, down from 18.91 million members in the previous year.

Looking ahead to full year 2011, Aetna projects operating earnings per share of $3.70 to $3.80. Twenty-three analysts project earnings per share of $3.27 for 2011.

The moderation in demand for medical services has helped medical insurers in the fourth quarter. UnitedHealth Group Inc. (UNH) and Cigna Corp. (CI) recently reported higher profits for the fourth quarter helped by lower-than-expected medical utilization.

AET closed Thursday's regular trade at $33.27, down $0.13 or 0.39%, on 6.03 million shares. For the past year, the stock traded in the range of $25.00-$35.96.

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