) second-quarter 2012 operating earnings per share came in at
$2.19, lagging the Zacks Consensus Estimate of $2.23 as well as the
year-ago earnings of $2.59 per share.
The earnings decline was attributable to lower pre-tax income in
the company's Retail segment, which were partially offset by higher
year-over-year earnings in the Humana's Employer Group and Health
and Well-Being Services business segments.
The operating earnings exclude expenses of about 18 cents per
share related to a litigation settlement in the reported quarter
and the positive impact of 15 cents and 12 cents per share in the
first quarter of 2012 and the prior-year quarter, respectively,
related to favorable development of prior-period medical claims
On a reported basis, Humana earned $356 million or $2.16 per
share in the quarter, against $460 million or $2.71 per share in
the prior-year quarter.
Consolidated revenues for the reported quarter climbed 4.0% year
over year to $9.70 billion but lagged the Zacks Consensus Estimate
of $9.85 billion. Revenues from premium and administrative services
also increased 4.0% year over year to $9.60 billion.
Meanwhile, total medical membership increased 8.5% year over
year to 11.94 million at the end of June 2012, while the total
specialty membership at the end of the reported quarter rose 7.0%
to 7.86 million.
Humana reported benefit expenses of $7.65 billion, up 5.3% year
over year, while operating costs climbed 16.0% year over year to
$1.38 billion. Alongside, depreciation and amortization expenses
spiked 7.4% year over year to $73 million.
Consolidated benefit ratio, which reflects the percentage of
benefit expenses in premium revenues, increased by 140 basis points
to 83.5% from 82.1% in the prior-year quarter, mainly buoyed by 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, increased to 14.4% from 13.0% in the prior-year quarter,
primarily as a result of the adverse impact of the accounting
changes for the company's new South Region TRICARE contract.
The retail segment includes Medicare Advantage and prescription
drug plans, and individual health insurance business lines.
The segment's pre-tax income plummeted to $367 million from $503
million in the prior-year quarter, on the heels of increased
benefit and operating cost ratios.
Reported premiums and services revenue increased 16% to $6.28
billion in the reported quarter. The upside primarily resulted from
18% year-over-year growth in individual Medicare Advantage
The benefit ratio was 84.1% as compared with 81.4% in the
prior-year quarter. Operating cost ratio also increased 90 basis
points (bps) to 10.0% 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 $114 million in the
reported quarter compared to $108 million in the prior-year
quarter. Meanwhile, reported premiums and services revenue
increased 13% to $2.62 billion, primarily on the back of higher
group Medicare Advantage membership.
The benefit ratio was 82.2% versus 81.2% in the prior-year
quarter, whereas the reported operating cost ratio was 15.9%, down
90 bps from 16.8% in the year-ago quarter.
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 $131
million from $88 million in the prior-year quarter, due to growth
in the company's pharmacy solutions business.
Reported services revenue also increased to $3.22 billion from
$2.73 billion in the year-ago quarter, primarily based on the
growth in the Medicare Advantage enrollment and increased
utilization in the company's mail-order pharmacy business. However,
operating cost ratio decreased 80 bps to 95.2% in the reported
Cash flow from operations was $706 million in the quarter under
review, surging from $161 million in the year-ago quarter, mainly
due to changes in working capital. Humana exited the quarter with
cash and cash equivalents of $3.87 billion and long-term debt of
Share Repurchase and Dividend Update
During the second quarter of 2012, Humana repurchased 1.58
million shares at an average price of $79.94 per share. As of June
30, 2012, the company had $874 million outstanding under its share
repurchase program, which will expire in June 30, 2014.
On July 27, 2012, Humana paid a cash dividend of 26 cents per
share to shareholders of record as of June 29, 2012.
Humana slashed its 2012 earnings forecast to a range of
$6.90-7.10 per share from its earlier forecast of $7.55-7.75 per
share, mainly due to higher-than-expected benefit ratio for new
Medicare Advantage policyholders as well as higher utilization
rates for new and existing policyholders in the reported
The company also declared its third-quarter EPS guidance of
$2.00-2.10. The guidance excludes the impact of future share
Consolidated revenue for 2012 is expected to be in the range of
$39.0-39.5 billion. Additionally, cash flow from operations is
projected between $1.6-1.8 billion, while capital expenditure is
anticipated to be around $375 million.
UnitedHealth Group Inc.
), a rival of Humana, declared its second-quarter 2012 earnings of
$1.27 per share, up 9% over the year-ago quarter.
), will announce its second-quarter 2012 financial results before
the market opens on August 2, 2012.
Currently, the shares of Humana carry a Zacks #3 Rank, implying
a short-term Hold rating.
CIGNA CORP (CI): Free Stock Analysis Report
HUMANA INC NEW (HUM): Free Stock Analysis
UNITEDHEALTH GP (UNH): Free Stock Analysis
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