Molina Healthcare (MOH) Q2 Earnings Beat, Maintains Outlook - Analyst Blog


Molina Healthcare Inc. ( MOH ) reported second-quarter 2014 operating earnings of 62 cents per share, beating the Zacks Consensus Estimate of 43 cents per share. However, the figure declined from the year-ago quarter's earnings of 80 cents per share.

The year-over-year decline was due to the delays in obtainment of agreements for the reimbursement of the Health Insurer Fee (HIF) as well as delay in the quality related revenue recognition.

Molina Healthcare, Inc - Earnings Surprise | FindTheBest

Including depreciation and amortization of capitalized software, amortization of convertible senior notes and lease financing obligations, amortization of intangible assets, Molina Healthcare reported net income of 16 cents per share in the quarter, lower than 34 cents earned in the year-ago quarter.

Operational Update

Total revenue in the reported quarter climbed approximately 44% to $2.3 billion from $1.6 billion in the prior-year quarter. Revenues were in line with the Zacks Consensus Estimate. The year-over-year upside in revenues was mainly driven by higher premium and service revenues, premium tax revenues, health insurer fee revenues and investment income.

Premium revenues improved 44.3% year over year to $2.2 billion. Molina Healthcare's service revenues also increased 1.1% to $50.2 million.

Further, Molina Healthcare's investment income rose 19.5% year over year to $1.9 million. Premium tax revenue also increased to $70.1 million from $46.9 million in the second quarter of 2013.

Total operating expenses rose 46.2% year over year to $2.3 billion. The rise was owing to higher general and administrative (G&A) expenses ($193.2 million from $161.5 million), premium tax expenses ($70.1 million from $46.9 million), depreciation and amortization (D&A) costs ($22.9 million from $17.0 million), and medical care costs ($1.9 billion from $1.3 billion).

Operating income was $32.4 million in the reported quarter, comparing unfavorably with operating income of $46.4 million in the year-earlier quarter.

Additionally, Molina Healthcare's interest expenses increased to approximately $14 million from $11.7 million in the year-ago quarter. Further, medical care ratio (ratio of medical care costs to premium revenue) deteriorated 310 basis points to 89.3% from 86.2% in the year-ago quarter.

Financial Update

As of Jun 30, 2014, cash and cash equivalents at Molina Healthcare were $1 billion, up from $935.9 million at 2013-end. During the second quarter of 2014, cash from operations amounted to $24.6 million as against $129.2 million used in the year-ago quarter.

As of Jun 30, 2014, total assets increased to $3.5 billion from $3 billion at 2013-end. Meanwhile, Molina Healthcare's shareholder equity was $917.1 million as of Jun 30, 2014 against $892.9 million as of Dec 31, 2013.
2014 Outlook

Molina Healthcare reiterated its 2014 net operating income guidance at $1.65-$2.15 per share. The adjusted net income from continuing operations outlook was also unchanged at $4.00-$4.50 per share. This guidance takes into account the full reimbursement of Affordable Care Act's Health Insurer Fee (ACA HIF) and the quality incentive program revenue from the Texas Health plan.  

Our Take

Although Molina Healthcare's second-quarter earnings exceeded our expectations, it was below the year-ago quarter figure mainly due to the ACA HIF reimbursement delay. The top line, on the other hand, was in line with the Zacks Consensus Estimate and improved year over year.

Molina Healthcare started serving members in California, Illinois and Ohio under the dual eligible pilot programs in the second quarter, which is evident from its increase in aggregate membership.  We expect the company to ride on membership growth and come up with better revenues going forward.

Performance of Other HMOs

Humana Inc. ( HUM ) posted second-quarter 2014 operating earnings of $2.19 per share, which was in line with the Zacks Consensus Estimate.

WellPoint Inc. ( WLP ) reported second-quarter 2014 adjusted income of $2.44 per share, beating the Zacks Consensus Estimate of $2.28.

Aetna Inc.'s ( AET ) second-quarter 2014 earnings of $1.69 per share beat the Zacks Consensus Estimate of $1.61 per share.

Zacks Rank

Molina Healthcare currently sports a Zacks Rank #1 (Strong Buy).

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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: WLP , AET , HUM , MOH

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