) third-quarter 2012 operating earnings per share came in at
$2.41, substantially beating the Zacks Consensus Estimate of
$2.05. However, earnings per share (EPS) lagged the year-ago
earnings of $2.54 per share.
The year-over-year earnings decline was attributable to lower
pre-tax income in the company's Retail and Employer Group
segments, which were partially offset by higher year-over-year
earnings in the Health and Well-Being Services segment.
The operating earnings exclude the positive impact of 21 cents
and 13 cents per share in the third quarter of 2012 and the
prior-year quarter, respectively, related to favorable
development of prior-period medical claims reserves. On a
reported basis, Humana earned $426 million or $2.62 per share in
the reported quarter, against $445 million or $2.67 per share in
the prior-year quarter.
Consolidated revenues for the reported quarter climbed 4.0%
year over year to $9.65 billion, but lagged the Zacks Consensus
Estimate of $9.86 billion. Revenues from premium increased 2.7%
year over year to $9.09 billion, while services revenue surged
31.2% to $467 million in the reported quarter. Additionally,
investment income grew 3.2% to $96 million in the third quarter
Meanwhile, total medical membership increased 8.5% year over
year to 12.02 million at the end of September 2012, while the
total specialty membership at the end of the reported quarter
hiked 11.9% to 8.03 million.
Humana reported benefit expenses of $7.47 billion, up 4.5%
year over year, while operating costs climbed 3.5% year over year
to $1.41 billion. Alongside, depreciation and amortization
expenses expanded 11.9% year over year to $75 million.
Consolidated benefit ratio, which reflects the percentage of
benefit expenses in premium revenues, increased by 150 basis
points to 82.2% from 80.7% in the prior-year quarter, mainly due
to a hike in the benefit ratio of the Retail and Employer Group
The consolidated operating cost ratio, which reflects the
percentage of operating costs in total revenues less investment
income, inched down to 14.7% from 14.8% in the prior-year
quarter, primarily as a result of improvement in operating
leverage, which was partially offset by the adverse impact of the
accounting changes for the company's new South Region TRICARE
The retail segment includes Medicare Advantage and prescription
drug plans, and individual health insurance business lines.
The segment's pre-tax income plummeted to $424 million from
$541 million in the prior-year quarter, on the heels of increased
benefit ratio and favorable impact of prior-year medical claims
Reported premiums and services revenue increased 14% to $6.14
billion in the reported quarter. The upside primarily resulted
from an 18% year-over-year growth in individual Medicare
The benefit ratio was 82.3% compared with 78.7% in the
prior-year quarter. However, operating cost ratio decreased 50
basis points (bps) to 10.7% in the reported quarter.
The employer group includes employer group coverage and group
Medicare Advantage and prescription drug plans.
The segment reported pre-tax income of $43 million in the
reported quarter compared to $46 million in the prior-year
quarter. Meanwhile, reported premiums and services revenue
increased 14% to $2.64 billion, primarily on the back of higher
group Medicare Advantage membership. The benefit ratio was 85.3%
versus 83.5% in the prior-year quarter, whereas the reported
operating cost ratio was 15.6%, up 190 bps from 17.5% in the
Health and Well-Being Services:
Health and well-being services include pharmacy solutions,
primary care services, home care services and integrated wellness
Pre-tax income for the segment increased substantially to $148
million from $83 million in the prior-year quarter, due to growth
in the company's pharmacy solutions business. Reported services
revenue also increased to $3.20 billion from $2.83 billion in the
year-ago quarter, primarily due to the growth in the Medicare
Advantage enrollment and increased script volume in the company's
mail-order pharmacy business. However, operating cost ratio
decreased 170 bps to 94.6% in the reported quarter.
Cash utilized in operations was $1.33 billion in the quarter
under review, compared with cash flow of $2.92 billion in the
year-ago quarter, mainly due to changes in working capital and
reduced net income. Humana exited the quarter with cash and cash
equivalents of $1.36 billion and long-term debt of $1.62
Share Repurchase Update
During the third quarter of 2012, Humana repurchased 3.52
million shares at an average price of $66.50 per share. As of
November 5, 2012, the company had $640 million worth of shares
outstanding under its share repurchase program, which will expire
in June 30, 2014.
Concurrently, Humana announced a definitive agreement to
acquire a medical services organization - Metropolitan Health
Networks Inc. - and purchased a non-controlling equity interest
in another - MCCI Holdings LLC. Further, the company acquired
Certify Data Systems, a company that facilitates exchange of
health care data between healthcare providers and patients.
Humana raised its 2012 earnings forecast to a range of
$7.25-$7.35 per share from its earlier forecast of $6.90-$7.10
per share, mainly due to favorable development in the prior-year
medical claims reserve and enhanced results in the stand-alone
prescription drug plan business. The company also declared its
EPS guidance of $7.60-$7.80 for 2013, including about 30 cents
per share related to the increased investments in integrated care
Consolidated revenue for 2012 and 2013 are expected to be in
the range of $39.0-$39.5 billion and $40.8-$41.3 billion,
respectively. Additionally, cash flow from operations is
projected between $1.7-$1.9 billion in 2012 and $1.8-$2.0 billion
in 2013. Moreover, capital expenditure is anticipated to be
around $400 million in 2012 and between $425 million and $450
million in 2013.
UnitedHealth Group Inc.
), one of Humana's peers, reported its third quarter 2012
earnings of $1.50 per share significantly ahead of the Zacks
Consensus Estimate of $1.31 per share. Higher revenue across the
board and strong enrollment growth, partially offset by higher
operating costs, were responsible for the better-than-expected
results. Also, share repurchases boosted the bottom-line
) third quarter core earnings of $1.71 per share significantly
outpaced the Zacks Consensus Estimate of $1.37 per share.
Moreover, the results surged 33% year over year.
Currently, the shares of Humana carry a Zacks #4 Rank,
implying a short-term Sell rating.
CIGNA CORP (CI): Free Stock Analysis Report
HUMANA INC NEW (HUM): Free Stock Analysis
UNITEDHEALTH GP (UNH): Free Stock Analysis
To read this article on Zacks.com click here.