CHICAGO, Feb. 9, 2011 /PRNewswire/ -- Zacks.com Analyst
Blog features: Sara Lee Corp. (NYSE: SLE), Coventry
Health Care Inc. (NYSE: CVH), Unitedhealth Group,
Inc. (NYSE: UNH), Aetna Inc. (NYSE: AET) and
WellPoint Inc. (NYSE: WLP).
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Here are highlights from Tuesday's Analyst Blog:
Sara Lee Misses but Reaffirms
Sara Lee Corp. (NYSE: SLE) reported strong operating
income growth for the second quarter of fiscal 2011, driven by
significant improvement in operating segment income across the
company, particularly in the North American Retail and
International Beverage business segments and lower corporate
expenses.
Adjusted earnings for the quarter were 24
cents a share compared to 27
cents during the same period of fiscal 2010. Earnings were
also a penny below the Zacks Consensus Estimate of 25 cents.
Quarterly Sales
Net sales for the quarter were almost flat year-over-year at
$2.3 billion, declining 0.4% as
favorable sales mix and higher prices were offset by lower unit
volumes and unfavorable foreign currency. Total unit volumes for
the quarter decreased by 5.8% year-over-year due to innovative new
products, successful trade spending and strategic pricing
initiatives.
Segments
The North American Retail segment adjusted net sales were
$754 million, up 1.2% year over year
due to favorable sales mix into higher-margin products which was
partially offset by the impact of trade spending and the exit from
commodity and kosher meat businesses.
The North American Foodservice segment sales decreased 2.4% to
$517 million, due to the loss of two
large customer contracts in fiscal 2010, a high-volume, low-margin
bakery contract lost in the third quarter and a low-volume,
high-margin liquid coffee contract lost in the fourth quarter.
International Beverage sales increased 6.7% year-over at
$896 million, largely due to
unfavorable foreign currency exchange rate gains.
The International Bakery segment sales decreased 7.2% to
$185 million, due to continued
macro-economic headwinds and competitive pressures.
Gross margin for the quarter contracted 279 basis points (bps)
to 34.0% versus 34.8% in the comparable prior-year quarter. The
company recorded an operating profit of $206
million compared to a profit of $269
million in the prior-year quarter. During the quarter,
commodity costs increased by approximately 127 million, while
marketing, advertising and promotional spending increased 2% during
the quarter.
Coventry Beats, Posts Outlook
Coventry Health Care Inc. (NYSE: CVH) reported its
fourth-quarter adjusted earnings of $142.1
million or 96 cents per share,
exceeding the Zacks Consensus Estimate of 89
cents. Full year 2010 earnings were $546.4 million or $3.70 per share, which also surpassed the Zacks
Consensus Estimate of $3.61.
Coventry's adjusted earnings in the fourth quarter excludes the
favorable impact of 5 cents from the
Medicare Advantage Private Fee-for-Service (MA-PFFS) product, while
full-year earnings excludes the favorable impact of 45 cents from the MA-PFFS product and an
unfavorable impact of $1.18 per share
from the previously announced Louisiana provider class action litigation.
The Medicare offering stands discontinued from January 1, 2010.
Including the impact of this item, Coventry reported net income
of $150.3 million or $1.01 per share in the fourth quarter as opposed
to $109.1 million or 74 cents per share in the prior-year period. Net
income in the fiscal 2010 was $438.6
million or $2.97 per share, as
against the net income of $242.3
million or $1.64 per share in
fiscal 2009, which included loss from discontinuing operations and
provision for income taxes.
The improved showing was due to continued emphasis on cost
containment throughout the organization and excellent liquidity
position.
Behind the Headlines
Total operating revenues in the reported quarter declined 12%
year over year to $3.03 billion, but
exceeded the Zacks Consensus Estimate of $2.99 billion. Coventry's operating revenues in
fiscal 2010 also plummeted 17% year over year to $11.59 billion, but exceeded the Zacks Consensus
Estimate of $11.56 billion.
During the fourth quarter, managed care premiums decreased 13%
to $2.73 billion, while revenues from
management services declined by 4% year over year to $294.6 million. Similarly, Coventry's managed
care premiums in fiscal 2010 plunged 18% year over year to
$10.41 billion, while revenues from
management services declined by 1% year over year to $1.17 billion.
Coventry witnessed total operating expenses for the reported
quarter of $2.79 billion, down 14%
from the year-ago quarter. Medical costs, the major operating
expense component, fell 17% to $2.16
billion. Though Coventry's cost of sales jumped in the
quarter, selling, general and administrative expenses (SG&A
expenses) and depreciation and amortization (D&A) dropped over
the said period.
Total operating expenses were $10.90
billion in the fiscal 2010, down 19% fyear over year.
Medical costs also declined 24% to $8.27
billion. Coventry's cost of sales surged 5% in fiscal 2010;
however, SG&A expenses and D&A fell 9% and 6%, respectively
in the reported year.
Total membership in the quarter increased 4.4% to 5.1 million
from the prior quarter.
Comparisons with Competitors
Rival company Unitedhealth Group, Inc. (NYSE: UNH)
reported fourth-quarter results on January
20, 2010. Income from continuing operations was 94 cents per share, substantially better than the
Zacks Consensus Estimate of 90 cents.
Full year EPS of $ 4.10 surpassed the
Zacks Consensus Estimate of $3.99.
Aetna Inc. (NYSE: AET) reported fourth-quarter profit
from continuing operations of 63
cents per share on February 4,
well ahead of the Zacks Consensus Estimate of 61 cents. Full-year 2010 core operating earnings
were $3.68 per share, ahead of the
Zacks Consensus Estimate of $3.63.
WellPoint Inc. (NYSE: WLP) reported fourth-quarter
results on January 26 with income
from continuing operations of $1.33
per share, surpassing the Zacks Consensus Estimate of $1.21. WellPoint also posted its earnings of
$6.74 per share in FY10, surpassing
the Zacks Consensus Estimate of $6.60.
Outlook for 2011
For fiscal 2011, Coventry expects to earn between $2.50 and $2.70 per share, excluding the impact
from MA-PFFS as well as other one-time charges.
Coventry projects risk revenue of $10.35
billion to $10.80 billion and management services revenue of
$1.16 billion to $1.19 billion for
fiscal 2011.
The company expects its consolidated revenue guidance to a range
of $11.51 billion - $11.99 billion.
Coventry's consolidated MLR is expected between 82.0% and 82.8% in
fiscal 2011.
Coventry anticipates cost of sales in the range of $255.0 million to $263.0 million, with SG&A
expenses in the range of $2.00 billion to
$2.04 billion, D&A between $135.0
million and $141.0 million, and interest expense in the
range of $80.0 million to $85.0
million in fiscal 2011.
Coventry's other income is expected to range between
$69.0 million and $74.0 million in
fiscal 2011.
Shares outstanding at year end 2011 are expected to be 147.0
million to 150.0 million.
Our Take
Coventry has a solid fundamental business and continues to grow
with all seven core businesses performing at or above internal
expectations. Further, we believe that Coventry is also growing on
the acquisition front, as it is making continuous efforts to expand
its footprint in Missouri and
Arkansas.
On October 1, Coventry completed
the acquisition of Mercy Health Plans ("MHP") and its subsidiaries
from Sisters of Mercy Health System for an undisclosed amount.
Coventry said the acquisition is expected to be slightly accretive
to its 2011 earnings and will serve more than 1.2 million members
in its six-state Midwest region.
We believe that Coventry's acquisitive growth strategy will help
it to leverage its regional service centers and improve operating
efficiencies, largely through economies of scale.
We maintain a Neutral recommendation on Coventry in the long
term. The quantitative Zacks #3 Rank (short-term Hold rating) for
the company indicates no clear directional pressure on the stock
over the near term.
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