UPDATE: Aetna 4Q Profit Up 30%, Dividend Hiked; Strong '11 View
February 04 2011 - 10:22AM
Dow Jones News
Aetna Inc. (AET) posted a 30% increase in fourth-quarter profit,
offered a far better-than-expected 2011 forecast and significantly
raised its dividend as the health insurer benefited from people's
lighter-than-usual use of medical services and new pricing on its
health plans.
Unlike some of its large peers, Aetna expects an increase in
2011 earnings per share, in spite of additional expenses hitting
the industry from the new U.S. health-coverage overhaul, ongoing
enrollment declines and a likely acceleration in patients' demand
for medical care.
Favorable terms in Aetna's contracts with providers such as
hospitals, the pricing of health plans to an "appropriate margin,"
and lower costs tied to unemployed enrollees on Cobra insurance are
expected to boost this year's profit, executives said. Aetna now
also expects that the benefits of its pharmacy benefit outsourcing
contract with CVS Caremark Corp. (CVS) will outpace transitional
expenses this year and contribute modestly to operating EPS.
Both the fourth-quarter results and 2011 view exceeded Street
views, with Aetna projecting full-year earnings per share of $3.70
to $3.80, compared with analysts' average estimate of $3.27.
The news recently lifted Aetna shares more than 12%, or $4.13,
to $37.40. Earlier the stock surpassed $38 for the first time since
October 2008.
Aetna's board instituted a quarterly dividend of 15 cents a
share, versus its previous 4-cent annual payout. The move will cost
an additional $225.9 million a year.
"These results reflect strong operating fundamentals across all
aspects of our business," Aetna Chairman Ronald Williams said. The
dividend increase, he added on a conference call, "will still allow
us to make ongoing investments in our core business, maintain a
robust share repurchase program, and pursue our strategic
diversification initiatives."
The 2011 outlook assumes a first-quarter decline in medical
membership of 680,000, bringing total medical membership to 17.8
million at the end of the first quarter, in line with prior
guidance, Chief Financial Officer Joseph Zubretsky said. Membership
is projected to be flat the rest of the year.
The 2011 forecast also assumes higher growth in medical costs as
the industry expects demand to return to normal levels, offset by
continued improvements in contracts with providers and lower costs
associated with unemployed people on Cobra insurance, President and
Chief Executive Mark Bertolini said.
Aetna attributed fourth-quarter and 2010 results to higher
commercial underwriting margins driven by management steps to
appropriately price plans, members' lower utilization of services
and a lower share count, partly offset by a decline in commercial
health-plan enrollment.
Aetna reported a profit of $215.6 million, or 53 cents a share,
up from $165.9 million, or 38 cents a share, a year earlier.
Excluding restructuring-related costs, capital gains impacts and
other items, earnings climbed to 63 cents from 40 cents. Revenue,
excluding capital gains, decreased 2% to $8.51 billion as premium
revenue dropped 3.3%. Analysts polled by Thomson Reuters most
recently forecast earnings of 62 cents on revenue of $8.4
billion.
Total medical membership was 18.5 million at year's end, falling
60,000 sequentially.
Aetna reported that its total medical cost ratio, or the amount
of premiums used to pay patient medical costs, declined to 83% from
85.4% a year earlier.
"Given that Aetna guided well below the Street last year, the
much stronger 2011 guidance comes as a positive surprise to us,"
Deutsche Bank analyst Scott Fidel said.
Goldman Sachs analyst Matthew Borsch said the 2011 guidance
suggests Aetna is seeing less of a hit from overhaul mandates than
he expected.
Analysts noted that overhead expenses dampened fourth-quarter
results.
Aetna has been aiming to diversify its revenue base. Aetna last
month completed its $500 million acquisition of health
information-exchange-technology concern Medicity.
-By Dinah Wisenberg Brin, Dow Jones Newswires, 215-656-8285;
dinah.brin@dowjones.com
(Tess Stynes contributed to this story.)
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