Health Net Inc.
) fourth-quarter 2012 operating income, which comprises combined
net earnings from the Western Region Operations and Government
Contracts segments, came in at $29.8 million or 36 cents per
share, declining substantially from the year-ago level of $60.6
million or 72 cents per share. Operating income also lagged the
Zacks Consensus Estimate of 37 cents per share.
Including a $13.8 million pre-tax loss in the Divested
Operations and Services segment and $20.3 million in
Corporate/Other pre-tax expenses, the company reported net income
of $5.1 million or 6 cents per share in the fourth quarter of
2012, deteriorating considerably from $60.2 million or 71 cents
per share in the year-ago quarter.
The disappointing performance in the reported quarter was
primarily due to weak operating performance of the Government
Contracts segment along with higher health plan services
The company's total revenue improved 4.4% year over year to
$2.8 billion in the reported quarter. Revenues came in line with
the Zacks Consensus Estimate.
Health plan services premiums revenues came in at $2.6
billion, up 5.3% year over year. Meanwhile, total health plan
services expenses increased 8% to $2.3 billion from $2.1 billion
in the year-ago quarter. Total expenses increased 6.8% year over
year to $2.82 billion from $2.64 billion.
Western Region Operations:
The segment posted revenues of $2.6 billion in the quarter, up 4%
year over year. Net investment income for the segment increased
to $19.1 million from $10.0 million in the year-ago quarter.
Health plan services expenses increased 4.6% year over year to
$2.3 billion from $2.2 billion.
Total enrollment in the segment declined 1.1% year over year
to 2.6 million members as of Dec 31, 2012. Western Region
commercial enrollment declined 9.7% to 1.2 million members, while
enrollment in the company's California health plans dipped 1.3%
year over year.
However, enrollment climbed 14.1% to 0.23 million in Medicare
Advantage plans. Medicaid enrollment in California also increased
7.4% to 1.1 million in the reported quarter.
Medical care ratio (MCR) for Health Net's health plan services
in the segment increased to 88.1% during the reported quarter
from 86.3% in the year-ago quarter, while Commercial MCR
deteriorated to 87.4% from 84.8% in the prior-year quarter.
Medicare Advantage MCR declined to 88.6% from 90.5% in the
Revenues from the segment declined to $159.6 million from $194.6
million in the fourth quarter of 2011. The segment's expenses
also plummeted to $136.6 million from $155.6 million in the
prior-year quarter. The decline in both revenues and expenses
were due to the new Military and Family Life Counseling contract
implemented in the reported quarter.
Full-Year 2012 Highlights
For full year 2012, Health Net's Western Region and Government
Contracts segments produced combined net earnings of $85.1
million or $1.02 per share, declining from $278.7 million or
$3.09 in 2011. Operating earnings lagged the Zacks Consensus
Estimate of $1.04 per share.
However, Health Net's reported net income came in at $121.2
million or $1.46 per share, surpassing $72.1 million or 80 cents
per share in 2011.
Total revenue was $11.28 billion, down 1.2% year over year
from $11.42 billion but marginally exceeding the Zacks Consensus
Estimate of $11.20 billion. Moreover, total expenses inched down
0.1% from 2011 to $11.2 billion.
As of Dec 31, 2012, Health Net had cash and investments of
approximately $2.2 billion, increasing from $1.8 billion as of
Dec 31, 2011. However, the company's debt-to-total capital ratio
decreased to 24.3% from 26.2% as of Dec 31,
Health Net's operating cash flow stood at $33.4 million in the
reported quarter compared with an outflow of $119.8 million in
the year-ago quarter. For 2012, operating cash flow amounted to
$32.5 million, plunging from $103.4 million in 2011, due to the
impact of the sale of Health Net's Medicare PDP business.
Total assets of the company were $3.92 billion as of Dec 31,
2012, improving from $3.61 billion a year ago. Stockholders'
equity increased to $1.55 billion from $1.44 billion as of Dec
Share Repurchase Update
During 2012, Health Net repurchased 2.1 million shares at an
average price of $24.05, totaling $50 million. The company had
$350 million remaining under its current $400 million share
repurchase authorization as of Dec 31, 2012.
Outlook for 2013
Health Net affirmed its reported net income guidance of
$2.00-$2.10 per share for 2013.
The company estimates total health plan membership in 2013 to
dip 1%−2% over 2012. The expected decline is primarily due to an
8%−9% estimated downturn in commercial enrollment, partially
offset by a 1%−2% anticipated improvement in the Medicare
Advantage enrollment and a 4%−6% rise predicted in Medicaid
Additionally, consolidated revenues for the combined Western
Region Operations and Government Contracts segments are expected
between $10.7 billion and $11.2 billion.
Moreover, the commercial premium yields per member per month
(PMPM) for the Western Region Operations segment in 2013 is
projected to grow 3.6% year over year, driven by the shifts
occurring in the product and geographic mix. The commercial
membership is expected to be skewed toward the smaller accounts
and tailored network products having premiums PMPM below the
Meanwhile, the tax rate for Health Net is expected to be
38%−39%. The company also expects selling cost ratio to be in the
range of 2.3%−2.4% and general and administrative expense ratio
to be in the range of 9.0%−9.4%.
Outstanding share count is expected to be around 80 million at
the end of 2013. All the abovementioned guidance include
operating expenses of $30 million related to the implementation
of the health care reform but exclude costs related to Health
Net's participation in California's dual eligible demonstration
Other Healthcare Companies
) reported fourth-quarter 2012 adjusted income of $1.03 per
share, beating the Zacks Consensus Estimate of 95 cents. Adjusted
income also surpassed the year-ago earnings of 99 cents per share
UnitedHealth Group Inc.
) reported fourth-quarter 2012 earnings of $1.20 per share, in
line with the Zacks Consensus Estimate. Earnings, however,
increased 2.6% on a year-over-year basis.
Health Net carries a Zacks Rank #3 (Hold). Another healthcare
Molina Healthcare, Inc.
), carrying a Zacks Rank #2 (Buy), is slated to release its
earnings results on Feb 7.
HEALTH NET INC (HNT): Free Stock Analysis
MOLINA HLTHCR (MOH): Free Stock Analysis
UNITEDHEALTH GP (UNH): Free Stock Analysis
WELLPOINT INC (WLP): Free Stock Analysis
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