) first-quarter 2013 operating earnings came in at $407 million
or $2.69 per share. The results substantially surpassed the Zacks
Consensus Estimate of $1.78 as well as the year-ago earnings of
$248 million or $1.49 per share.
Including $66 million or 26 cents per share related to the
favorable impact of a litigation settlement and delay in the
implementation of sequestration, Humana's net income amounted to
$473 million or $2.95 per share. The strong performance in the
company's Retail, Employer Group and Other Business segments,
along with a lower-than-expected tax rate led to the increase in
Revenues of Humana for the reported quarter climbed 2.6% year
over year to $10.49 billion, surpassing the Zacks Consensus
Estimate of $10.25 billion. Revenues from premium increased 1%
year over year to $9.87 billion, while services revenue surged
50% to $525 million in the reported quarter. However, Humana's
investment income declined 1.1% to $93 million in the first
quarter of 2013.
Total medical membership of Humana increased 4.6% year over
year to 12.3 million at the end of Mar 2013, while the total
specialty membership increased 7% to 8.23 million.
Humana's consolidated benefit ratio, which reflects the
percentage of benefit expenses in premium revenues, improved 240
basis points (bps) year over year to 83.0%, mainly due to lower
benefit ratio of the Retail and Employer Group segments.
Humana's consolidated operating cost ratio, which reflects the
percentage of operating costs in total revenue less investment
income, inched up 20 bps year over year to 13.9%. The increase
primarily resulted from the impact of the accounting for the new
South Region TRICARE contract in Humana's Other Businesses, which
offset the decline in the operating cost ratio of the Retail and
Employer Group Segments.
Quarterly Results by Segment
The segment's pre-tax income surged 173% year over year to $350
million due to higher membership and premiums, partially offset
by a decline in benefit ratio and operating cost ratio.
Reported premiums and services revenue increased 12.2% to
$6.91 billion in the reported quarter. The upside primarily
resulted from a 9.4% year-over-year surge in individual Medicare
Advantage membership and a 2.9% increase in Medicare Advantage
per member premium.
The benefit ratio was 85.9%, down 160 bps year over year.
Moreover, the operating cost ratio decreased 150 bps to 8.9% in
the reported quarter.
The segment incurred pre-tax income of $205 million, increasing
from $129 million incurred in the year-ago quarter, largely
driven by a better benefit ratio and operating cost ratio in the
Meanwhile, reported premiums and services revenue increased
7.8% to $2.83 billion, primarily on the back of higher group
Medicare Advantage and commercial fully-insured membership. The
benefit ratio was 79.6%, down 160 bps year over year, whereas the
operating cost ratio went down 110 bps to 15.5%.
Pre-tax income for the segment stayed flat year over year at $125
million, as the increased revenues and profits from the
acquisition of Metropolitan Health Networks Inc. was offset by
the expenses incurred in expansion of the integrated care
Revenue of this segment of Humana also increased to $3.72
billion, up 13.2% year over year, primarily due to improvement in
the pharmacy solutions business and the Metropolitan acquisition.
However, operating cost ratio inched up 10 bps to 95.7% in the
Humana's other business segment reported a pre-tax income of $58
million, surging from $5 million in the year-ago quarter.
Humana's cash from operations was $412 million in the reported
quarter compared with $2.35 billion in the year-ago quarter,
mainly due to the timing of the payment from the Center for
Medicare and Medicaid Services (CMS). Humana exited the quarter
with cash and cash equivalents of $1.40 billion and long-term
debt of $2.61 billion.
Share Repurchase Update
During the reported quarter, Humana spent $81 million to
buyback 1.21 million shares at an average price of $67.60 per
share. In Apr 2013, Humana replaced its old share repurchase
authorization with a new repurchase authorization worth $1
billion, which will expire in Jun 2015. The old authorization has
an outstanding balance of $557 million.
During the reported quarter, Humana spent $42 million on
With effect from Jan 1, 2013, Humana reclassified its
HumanaVitality, Lifesynch, Limited Income Newly Eligible
Transition (LI-NET) and state-based Medicaid businesses to
correspond with internal management reporting changes for the
related operations. Moreover, the company renamed its Health and
Well-Being Services segment as Healthcare Services.
Humana raised its earnings guidance for 2013 to $8.40-$8.60
per share from $7.60-$7.80. The company expects its
second-quarter earnings in the range of $2.40-$2.50 per
Consolidated revenue for 2013 is expected in the range of
$41-$41.5 billion. Additionally, cash flow from operations would
be in the range of $1.9-$2.1 billion for 2013. Moreover, capital
expenditure is anticipated in the range of $425-$450 million in
Results at Few Other HMOs
Another health maintenance organization (HMO),
) reported first-quarter 2013 adjusted income of $2.94 per share,
beating the Zacks Consensus Estimate of $2.37. Adjusted income
also surpassed the year-ago earnings of $2.34 per share by
Health Net Inc.
) first-quarter 2013 operating income came in at $8.2 million or
10 cents per share, rebounding from the year-ago loss of $8.1
million or 10 cents per share. Operating income, however, lagged
the Zacks Consensus Estimate of 41 cents per share.
UnitedHealth Group Inc.
) reported first-quarter 2013 earnings of $1.16 per share, in
line with the Zacks Consensus Estimate. Earnings, however,
declined 11.4% on a year-over-year basis.
Humana currently carries a Zacks Rank #3 (Hold).
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HUMANA INC NEW (HUM): Free Stock Analysis
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