Health Net's Earnings In Line in Q2 - Analyst Blog

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Health Net Inc. 's ( HNT ) second-quarter 2013 operating income, which comprises combined net earnings from the Western Region Operations and Government Contracts segments, came in at $41.4 million or 52 cents per share, improving from the year-ago quarter's earnings of $15.9 million or 19 cents per share. Operating income was in line with the Zacks Consensus Estimate.

Health Net reported net income of $33.5 million or 42 cents per share in the second quarter of 2013, declining considerably from $124.6 million or $1.48 per share in the year-ago quarter. Net income includes pre-tax corporate expenses of $12.9 million in the reported quarter and $119.4 million or $1.42 per share for gains on sale of the Medicare stand-alone Part D prescription drug plan business in the second quarter of 2012.

Health Net's total revenue declined 3.6% year over year to $2.74 billion in the reported quarter. Revenues surpassed the Zacks Consensus Estimate of $2.73 billion.

Health plan services premiums revenues of Health Net came in at $2.6 billion, down 1.5% from the second quarter of 2012. Meanwhile, total health plan services expenses declined 7.1% to $2.2 billion from $2.4 billion in the year-ago quarter. Total expenses declined 5.2% year over year to $2.69 billion from $2.83 billion.

Segment Performance

Western Region Operations: This segment of Health Net posted revenues of $2.6 billion in the quarter, down 2% from the year-ago quarter. Net investment income for the segment declined to $17.1 million from $24.7 million in the year-ago quarter. Health plan services expenses declined 8.3% year over year to $2.2 billion.

Total enrollment in the segment declined 3.2% year over year to 2.5 million members as of Jun 30, 2013. Western Region commercial enrollment dipped 11.6% to 1.1 million members, while enrollment in the company's California health plans declined 1.7% year over year. However, enrollment climbed 3.5% to 0.24 million in Medicare Advantage plans. Medicaid enrollment also increased 5.5% to 1.1 million in the reported quarter.

Medical care ratio (MCR) for Health Net's health plan services in the segment improved to 85% during the reported quarter from 90.1% in the year-ago quarter and Commercial MCR declined to 84.9% from 88.7% in the prior-year quarter. Medicare Advantage MCR deteriorated to 89.9% from 92% in the year-ago quarter. Medicaid MCR amounted to 79.5%, plunging from 91.3% in the year-ago quarter.

Government Contracts: Revenues from this segment of Health Net declined to $139.9 million from $176.2 million in the second quarter of 2012. The segment's expenses also plummeted to $121.8 million from $152.7 million in the prior-year quarter.

Financial Update

As of Jun 30, 2013, Health Net had cash and investments of approximately $1.9 billion, declining from $2.1 billion as of Jun 30, 2012. The company's debt-to-total capital ratio also increased to 25.6% from 24.1% as of Jun 30, 2012.                    

Health Net's operating cash outflow stood at $106.3 million in the reported quarter compared with an inflow of $119.8 million in the year-ago quarter.

Total assets of Health Net were worth $3.88 billion as of Jun 30, 2013, declining from $4.03 billion as of Jun 30, 2012. Stockholder equity declined to $1.52 billion from $1.54 billion as of Jun 30, 2012.

Outlook for 2013

Health Net reduced its reported net income guidance for 2013 to $2.10-$2.20 per share from $2.20-$2.30 per share. Operating income is expected to be $2.20-$2.30 per share.

Health Net estimates total health plan membership in the Western Region Operations in 2013 to decline 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 enrollment.

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 2.0% year over year.

Government Contract's pre-tax income is expected to be about $55-$60 million. Meanwhile, the tax rate for Health Net is expected to be 38%−38.5%.

The company also expects selling cost ratio in the range of 2.3%−2.4% and general and administrative expense ratio in the range of 10%−10.5%. Outstanding share count is expected to be around 80-81 million at the end of 2013.

Other Healthcare Companies

Another health maintenance organization (HMO), WellPoint Inc. ( WLP ) reported second-quarter 2013 adjusted income of $2.60 per share, beating the Zacks Consensus Estimate of $2.08. Adjusted income also surpassed the year-ago earnings of $2.04 per share by 27.5%.

UnitedHealth Group Inc. ( UNH ) reported its second-quarter 2013 earnings of $1.40 per share, higher than the Zacks Consensus Estimate of 1.26 per share. Earnings were also up 7.4% on a year-over-year basis.

Molina Healthcare Inc. ( MOH ) reported second-quarter 2013 operating earnings per share of 34 cents, surpassing the Zacks Consensus Estimate of 31 cents. Earnings per share rebounded from the year-ago quarter's loss of 71 cents.

Zacks Rank

Health Net carries a Zacks Rank #2 (Buy).



HEALTH NET INC (HNT): Free Stock Analysis Report

MOLINA HLTHCR (MOH): Free Stock Analysis Report

UNITEDHEALTH GP (UNH): 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: HNT , MCR , MOH , UNH , WLP

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