Humana's CEO Discusses Q2 2011 Results - Earnings Call Transcript

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Humana (HUM)

Q2 2011 Earnings Call

August 01, 2011 9:00 am ET

Executives

James Bloem - Chief Financial Officer, Senior Vice President and Treasurer

Michael McCallister - Chairman, Chief Executive Officer and Chairman of Executive Committee

James Murray - Chief Operating Officer

Regina Nethery - Vice President Investor Relations

Analysts

Christian Rigg - Susquehanna Financial Group, LLLP

Joshua Raskin - Barclays Capital

Peter Costa - Wells Fargo Securities, LLC

Justin Lake - UBS Investment Bank

Sarah James - Wedbush Securities Inc.

Carl McDonald - Citigroup Inc

Scott Fidel - Deutsche Bank AG

Charles Boorady - Crédit Suisse AG

Matthew Borsch - Goldman Sachs Group Inc.

David Windley - Jefferies & Company, Inc.

Ana Gupte - Sanford C. Bernstein & Co., Inc.

John Rex - JP Morgan Chase & Co

Thomas Carroll - Stifel, Nicolaus & Co., Inc.

Doug Simpson - Morgan Stanley

Christine Arnold - Cowen and Company, LLC

Kevin Fischbeck - BofA Merrill Lynch

Presentation

Operator

Good morning. My name is Ryan, and I'll be your conference operator today. At this time, I would like to welcome everyone to Humana's Second Quarter 2011 Earnings Release Conference Call. [Operator Instructions] Ms. Nethery, you may begin your conference.

Regina Nethery

Good morning and thank you for joining us. In a moment, Mike McCallister, Humana's Chairman of the Board and Chief Executive Officer; and Jim Bloem, Senior Vice President and Chief Financial Officer, will briefly discuss highlights from our second quarter 2011 results, as well as comment on our earnings outlook for 2011.

Following these prepared remarks, we will open up the lines for a question-and-answer session with industry analysts. Joining Mike and Jim for the Q&A session will be Jim Murray, our Chief Operating Officer; and Chris Todoroff, Senior Vice President and General Counsel. We encourage the investing public and media to listen in to both management's prepared remarks and the related Q&A with analysts.

This call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana's website, humana.com, later today. This call is also being simulcast via the Internet, along with a virtual slide presentation. For those of you who have company firewall issues and cannot access the live presentation, an Adobe version of the slides has been posted to the Investor Relations section of Humana's website.

Before we begin our discussion, I need to cover a few other items. First, our cautionary statement. Certain of the matters discussed in this conference call are forward looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors in this morning's press release, as well as in our filings with the Securities and Exchange Commission. Today's press release, our historical financial news releases and our filings with the SEC are all available on Humana's Investor Relations website. Finally, any references made to earnings per share or EPS in this morning's call refer to diluted earnings per common share.

With that, I'll turn the call over to Mike McCallister.

Michael McCallister

Good morning, everyone, and thank you for joining us. This morning, Humana reported second quarter earnings of $2.71 per share, an increase of 35% over the $2 per share we earned in the second quarter of 2010.

Looking ahead to the remainder of the year, we raised our full year EPS guidance to a range of $7.50 to $7.60 per share from the previous range of $6.70 to $6.90. This increase primary reflects lower projected benefit expense ratios in our Retail and Employer Group segments.

These are partially offset by new reinvestment spending in Medicare sales and marketing and related Medicare investments designed to improve the companies Star ratings processes and the clinical initiatives that make up our 15 percent Solution.

The essence of this is that we believe the second quarter's favorable results, along with our planned additional investment spending, positions us well for further growth, a midyear approach similar to last year's at this time which, as you know, proved successful.

With the 2012 Medicare annual election period just around the corner, my remarks this morning will focus primarily on opportunities to expand our 2012 Medicare Advantage and Medicare PDP membership a little more aggressively than we thought possible 90 days ago. As we've shared with you over the past several years, we worked constantly to research and understand seniors' changing needs and craft a value proposition that's differentiating and compelling.

This value proposition includes, among other proprietary elements, integrated care, performance-driven metrics for care providers and actionable information for the members themselves. One of the things we've learned about seniors that doesn't change from year to year is their desire for stable benefits and premiums.

For 2012, as has been the case for the past few years, we've been fortunate enough to be able to build such stability into our offerings, a genuine competitive advantage. On top of that, the results we announced this morning bode well for an excellent 2011 and give us the latitude to accelerate the kind of investments likely to produce an even better 2012. To illustrate, I'll describe 2 of these reinvestments in a little more detail.

First, with Medicare Advantage payment grades tied to Stars quality scores beginning in 2012, we plan to reinvest heavily in improving our Stars processes, procedures and infrastructure to position us for further improvements in Stars metrics. Humana believes deeply in paying for performance, the essence of the Stars program. Solid and growing evidence in terms of better health outcomes and lower costs indicates that paying for performance injects necessary productivity and accountability into a dysfunctional healthcare system that has been characterized for years by too little of both.

Second, our innovative Humana Cares program that focuses on members with multiple chronic conditions currently helps more than 100,000 people. Armed with data which tells us we can help more people while it also makes good business sense to expand our reach, we intend to do so. As I've discussed with you in past earnings calls, these seniors have improved their health and well-being while using fewer health resources with the guidance of Humana Cares nurses, other medical professionals and the network of community service agencies.

By spending more to build out this program, we anticipate offering Humana Cares to an additional 25,000 members. Although specific reinvestment plans are already being formulated, we will have the ability, if necessary, to modulate our plans as the competitive landscape becomes clear in early October.

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