2nd UPDATE: Cigna 3Q Net Rises 92%, 2010 Operating EPS View Flat
(Update throughout with 2010 outlook, company comments, details, analysis,
share price.)
By Dinah Wisenberg Brin
Of DOW JONES NEWSWIRES
Cigna Corp. (CI) posted a 92% increase in third-quarter profit, helped by
improvements in a legacy reinsurance business sensitive to the financial
markets, and reaffirmed its full-year consolidated operating earnings outlook.
Medical cost pressures in the insurer's commercial health plans, including
expenses associated with the H1N1 virus, tempered Cigna's ongoing efforts to
curb operating expenses, although the company's operating income for the period
exceeded Wall Street views.
Cigna, citing ongoing medical cost and unemployment pressures hitting the
managed-care industry, projected flat 2010 per-share earnings, with medical
membership stable after declining by 5% to 5.5% this year.
Cigna shares recently traded up 1.68%, or 50 cents, at $30.28.
"I remain confident in our ability to achieve our 2009 operating goals and
earnings estimates in this challenging business environment," Cigna Chairman and
Chief Executive H. Edward Hanway said.
Cigna posted third-quarter net income of $329 million, or $1.19 a share,
compared with net income of $171 million, or 62 cents a share, a year earlier.
The results in the recent quarter included a modest contribution from variable
annuity products in the legacy reinsurance business, mostly related to favorable
performance in equity markets, whereas the year-earlier period included steep
losses in those products.
Cigna's adjusted income from operations for the third quarter came to $1.13 a
share, compared with 89 cents a share a year earlier, exceeding the average
Thomson Reuters analyst estimate of $1.03 a share. Revenue of nearly $4.52
billion missed the Street estimate of $4.59 billion, and marked a decline from $
4.9 billion a year earlier.
Adjusted earnings and after-tax margin in the health-care segment grew
sequentially and year over year, with rate increases partly offsetting lower
premiums and fees resulting from the membership decline. The company's operating
expense management helped to boost the results, and executives said actions the
company has taken this year will result in some $150 million annualized in
pretax benefits. Among cost-cutting measures Cigna has taken this year, the
company started 2009 by announcing 1,100 layoffs representing 4% of its work
force. Other health insurers made similar moves.
Medical membership declined by 796,000 to 11.1 million year over year, and was
down 85,000 from the second quarter of this year.
Cigna reaffirmed it 2009 adjusted operating income estimate of $1.04 billion
to $1.10 billion, or $3.80 a share to $4 a share. This assumes health-care
operating income of $700 million to $750 million, a trimming of the high end of
the forecast range from the previous $760.
Cigna's operating income should be flat to higher by a single-digit percentage
point in 2010, with health-care segment earnings growing by a low- to mid-
single-digit percentage and revenue flat to slightly higher, executives said on
a conference call.
Analysts noted that Cigna's medical cost ratio, or the percentage of premium
revenue used to pay members' medical bills, was higher than expected in the
third quarter.
Credit Suisse Group (CS) analyst Gregory Nersessian called the third-quarter
results mixed.
"Health care and the other segments reported stronger-than-expected results,"
Nersessian said, noting that the lower operating expenses offset the higher-
than-expected medical cost ratio. However, "the disability and life segment
results were light this quarter as that segment continues to exhibit up-and-down
results this year."
Also, Nersessian said Cigna's international segment posted lower income than
expected as it "included an unspecified level of unfavorable claims experience."
While operating expenses in the health-care segment declined, Cigna "has a
long way to go" in trimming overhead costs, Oppenheimer analyst Carl McDonald
said.
-By Dinah Wisenberg Brin, Dow Jones Newswires
215-656-8285; dinah.brin@dowjones.com
(END) Dow Jones Newswires
11-05-091118ET
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