Health insurer Coventry Health Care, Inc. (CVH) on Wednesday lowered its second quarter and full year 2008 earnings outlook sharply, citing higher than expected medical loss ratios in its Medicare advantage and commercial group risk businesses. On the news, the company's shares tumbled nearly 20% in after hours trading.
The Bethesda, Maryland-based company said it now expects second quarter earnings to be in the range of $0.55 to $0.57 per share, compared to its prior guidance of $1.03 to $1.04 per share.
The company said it now expects revenue of $2.95 billion to $3.00 billion for each quarter of the fiscal year 2008. Previously, the company said it expected second quarter revenue of $2.95 billion to $3.10 billion.
Analysts polled by First Call / Thomson Financial currently expect the company to earn $1.04 per share on revenue of $3.07 billion for the second quarter.
The company cut its full year 2008 earnings guidance to a range of $3.65 to $3.75 per share from its prior guidance of $4.39 to $4.50 per share. The company also lowered its full year revenue outlook to a range of $11.800 billion to $12.045 billion from its previous outlook of $11.99 billion to $12.49 billion.
Analysts currently expect the company to earn $4.43 per share on revenue of $12.31 billion for the full year 2008.
"We are very disappointed with the April and May 2008 results and their anticipated effect on the second quarter and the full year," said Dale Wolf, chief executive officer of Coventry.
Higher than previously expected Medicare Advantage medical loss ratio commercial group risk medical loss ratio resulted in a reduction of $0.42 per share and $0.32 per share, respectively, to the midpoint of the company's full year 2008 earnings per share guidance, Coventry noted.
Coventry said it now expects 2008 Medicare Advantage medical loss ratio to increase 300 to 340 basis points from its prior estimate due to the Private Fee-for-Service program, which has received a much higher than expected level of claims related to prior periods.
The company said its commercial group risk business is experiencing higher than expected levels of outpatient use utilization as well as a higher than expected inpatient unit cost trend caused by an increased severity level of facility claims. The company now expects 2008 medical loss ratio in that business to climb to 80.3% from its earlier estimate of 78.8%.
Additionally, the company said it expects earnings of $1.05 to $1.09 per share for the third quarter and $1.24 to $1.28 per share for the fourth quarter. Analysts currently expect the company to earn $1.22 per share for the third quarter.
We have implemented corrective actions that we anticipate will put us back on an acceptable EPS growth path for 2009 and beyond," Coventry CEO Wolf said in a statement.
Many health insurers have lowered their earnings forecast to reflect higher medical costs. In April, UnitedHealth Group, Inc. (UNH) lowered its full year 2008 earnings outlook by 10% or $0.40 per share to a range of $3.55 to $3.60 per share.
Also in April, WellPoint, Inc. (WLP) lowered its full year 2008 earnings forecast and now expects net income in the range of $5.42 to $5.67 per share, including net realized investment losses of $0.06 per share. Earlier, its earnings forecast was $5.76 to $6.01 per share, which was cut sharply in March from earlier estimate of $6.41 per share.
Coventry shares, which have traded in a range of $37.50 to $64.00 over the past year, closed Wednesday's regular trading session at $40.00, down 97 cents or 2.37%. The stock is losing $7.95 or 19.88% in after hours trading.
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