Health insurer Humana, Inc. (HUM), which is being acquired by larger peer Aetna, Inc. (AET), reported Wednesday a profit for the second quarter that increased 25 percent from last year, reflecting improved results across each of the company's business segments.
Adjusted earnings per share topped analysts' expectations, while quarterly revenues missed their estimates. The company also reaffirmed its adjusted earnings guidance for the full-year 2015.
Aetna agreed in early July to acquire Humana in a cash and stock valued at about $230 per Humana share or a total of $37 billion. Humana stockholders will receive $125 in cash and 0.8375 Aetna shares for each Humana share. The deal, primarily subject to approval by both Humana and Aetna shareholders, is expected to close in the second half of 2016.
The Louisville, Kentucky-based company reported net income of $431 million or $2.85 per share for the second quarter, higher than $344 million or $2.19 per share in the prior-year quarter.
Results for the latest quarter include a $1.18 per share gain from the sale of wholly-owned subsidiary, Concentra Inc. for about $1.055 billion in cash.
Excluding the gain, adjusted net income for the latest quarter was $1.67 per share. On average, 17 analysts polled by Thomson Reuters expected the company to report earnings of $1.63 per share for the quarter. Analysts' estimates typically exclude special items.
Consolidated revenues, including investment income, for the quarter grew 12.4 percent to $13.73 billion from $12.22 billion in the same quarter last year, but missed ten Wall Street analysts' consensus estimate of $13.81 billion.
Total premiums and services revenue grew 12.3 percent to $13.62 billion, primarily driven by higher totals year-over-year in both the retail and group segments.
In Retail segment, premiums and services revenue grew 15.8 percent to $11.56 billion, primarily from a 12.2 percent increase in average medicare advantage membership. Individual medicare advantage membership also increased 14.8 percent to 2.71 million from last year.
In Group segment, premiums and services revenue improved 2.6 percent to $1.84 billion, primarily reflecting an increase in fully-insured commercial medical per member premiums. Group fully-insured commercial medical membership declined 2.6 percent to 1.18 million from a year ago.
In the Healthcare services segment, revenue increased 19.3 percent to $5.98 billion, primarily due to substantial growth in the company's Medicare membership, partially offset by lower Concentra revenues.
Consolidated benefit ratio or benefits expense as a percent of premiums, was 85.2 percent, up 210 basis points from 83.1 percent last year, primarily reflecting higher ratios in both the retail and group segments.
Consolidated operating cost ratio or operating costs as a percent of total revenues less investment income, contracted 180 basis points to 13.3 percent from last year, primarily reflecting a lower ratio in both the retail and group segments.
The company noted that its ability and intent to continue its quarterly dividend policy is not impacted by the proposed merger with Aetna, although the company has agreed that its quarterly dividend will not exceed $0.29 per share prior to closing the transaction.
Looking ahead to the third quarter, the company expects earnings of about $2.15 per share, while analysts project $2.18 per share.
For fiscal 2015, the company still expects adjusted earnings of about $7.75 per share, excluding the year-to-date gain on sale of Concentra of $1.53 per share. Street is currently looking for full-year 2015 earnings of $7.77 per share.
HUM closed Tuesday's regular trading session at $184.52, up $0.36 on a volume of 1.17 million shares. In the past 52-week period, the stock has been trading in a range of $115.51 to $219.79.
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