Health Net Lags on Q4 Earnings & Revs - Analyst Blog

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Health Net Inc. 's ( HNT ) fourth-quarter 2013 operating income, which comprises combined net earnings from the Western Region Operations and Government Contracts segments, came in at 24 cents per share. The figure missed the Zacks Consensus Estimate of 28 cents and declined from the year-ago quarter's earnings of 35 cents per share.

Including a 1 cent benefit related to a reduction in a legal settlement reserve, Health Net's net income for the reported quarter was 25 cents per share, up from 7 cents per share in the year-ago period.

The company's total revenue fell 3.3% year over year to approximately $2.7 billion in the fourth quarter of 2013. Revenues missed the Zacks Consensus Estimate of $2.8 billion.

Health plan services premium revenues of Health Net was $2.6 billion, down 3.1% from the fourth quarter of 2012. Meanwhile, total health plan service expenses declined 4.4% to $2.2 billion from $2.3 billion in the year-ago quarter. Total expenses for Health Net fell 4% year over year to $2.7 billion.

Segment Performance

Western Region Operations: This segment of Health Net posted revenues of $2.6 billion in the quarter, down from approximately $2.7 billion in the year-ago quarter. Net investment income for the segment declined to $11.6 million from $19.1 million in the year-ago quarter. Health plan services expenses slid 4.3% year over year to $2.2 billion.

Total enrollment in the segment decreased 4.1% year over year to 2.4 million members as of Dec 31, 2013. Western Region commercial enrollment dipped to 1.1 million members from 1.2 million as of Dec 31, 2012, while that under the company's California health plans declined 2.8% year over year. However, enrollment increased 4.3% to 0.24 million in Medicare Advantage plans. Medicaid enrollment also increased 3% to 1.1 million as of Dec 31, 2013.

Medical care ratio (MCR) for Health Net's health plan services in the segment improved to 87.1% from 88.2% in the year-ago quarter. Commercial MCR fell to 87.4% from 88.6% in the prior-year quarter, higher than the guidance provided while reporting third-quarter results. Higher-than-expected physician, outpatient and pharmacy utilization among individual members whose policies were called off owing to the Affordable Care Act (ACA) were responsible for this. Medicare Advantage MCR deteriorated to 90.5% from 87.4% a year ago. Medicaid MCR amounted to 82.7% compared with 87.9% in the year-ago quarter.

Government Contracts: Revenues from this segment declined to $148.5 million from $161.7 million in the fourth quarter of 2012. The segment's expenses also declined to $124.6 million from $138.5 million in the prior-year quarter. The new Military and Family Life Counseling contract that was initiated in the fourth quarter of 2012 led to decline in both revenues and expenses.

Full-Year Highlights

Health Net's full-year 2013 operating income, which comprises combined net earnings from the Western Region Operations and Government Contracts segments, came in at $2.21 per share, missing the Zacks Consensus Estimate of $2.26. The 2013 operating earnings were at the upper-end of the $2.20-$2.30 per share guidance.  However, the result improved significantly from the year-ago quarter earnings of $1.01 per share.

Health Net's net income for 2013 came in at $2.12 per share, up from $1.47 per share in the year-ago period.

Health Net's total revenue declined 2.1% year over year to approximately $11.1 billion in 2013, which lies within the company's guided range of $10.7-$11.2 billion.  

Financial Update

As of Dec 31, 2013, Health Net had cash and investments of approximately $2.1 billion, down from $2.2 billion as of Dec 31, 2012. The company's debt-to-total capital ratio improved to 19.7% as of Dec 31, 2013 from 20.4% as of Dec 31, 2012.

Health Net's operating cash flow stood at $95.8 million in 2013 compared with $32.5 million in 2012.

Total assets of Health Net were worth $3.9 billion as of Dec 31, 2013, almost in line with the year-ago numbers. Stockholder equity was $1.6 billion as of Dec 31, 2013 compared with $1.56 billion as of Dec 31, 2012.

Share Repurchase Update

Health Net repurchased 2.7 million shares for $70.0 million in full-year 2013. Currently, the company is left with $280 million worth of shares to be repurchased under its existing $400 million authorization.

Outlook for 2014

In anticipation of a 30% increase in revenues, Health Net expects its reported net income to be a minimum of $3 for full-year 2014. As per the company, this increase in revenues is to be driven by new and extended programs that are expected to contribute around 0.6 million members by 2014-end. Moreover, a decline in medical care ratios in the commercial and Medicare Advantage businesses and waning tax rate should also drive revenues in 2014.

Other Healthcare Companies

WellPoint Inc. ( WLP ) reported fourth-quarter 2013 adjusted income of 87 cents per share, beating the Zacks Consensus Estimate by a penny.

Molina Healthcare Inc. ( MOH ) failed to meet its fourth-quarter 2013 guidance by reporting an operating loss per share of 3 cents, wider than the Zacks Consensus Estimate loss of 1 cent.

Aetna Inc. ( AET ) reported fourth-quarter 2013 earnings of $1.34 per share, missing the Zacks Consensus Estimate by a penny.

Zacks Rank


Health Net presently carries a Zacks Rank #4 (Sell).



AETNA INC-NEW (AET): Free Stock Analysis Report

HEALTH NET INC (HNT): Free Stock Analysis Report

MOLINA HLTHCR (MOH): Free Stock Analysis Report

WELLPOINT INC (WLP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: MCR , AET , HNT , MOH , WLP

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