U.S. health insurer Aetna Inc.’s (AET) first quarter 2012 earnings of $1.34 cents per share missed the Zacks Consensus Estimate by 6 cents. Earnings declined 6.3% year over year. Despite an increase in revenues, the growth did not trickle down to the bottom-line results due to higher health care cost and operating expenses.
Aetna’s total revenue for the reported quarter grew 6% year over year to $8.86 billion, led by higher Health Care premium and higher fees and other revenue. Reported revenue surpassed the Zacks Consensus Estimate of $8.68 billion.
Operating expenses were $1.67 billion, up 7.1% year over year, due to higher health care costs and general and administrative expenses.
Operating expense ratio was 18.7% compared with 18.6% in the prior-year quarter.
Pre-tax operating margin was 9.4 % for the reported quarter, down 200 basis points year over year.
Segmental Performance
Aetna’s Health Care segment recorded revenues of $8.20 billion, up 6.4% year over year. Total premium increased 6.5% year over year to $7.2 billion, primarily attributable to an increase in Medicare premium, and higher Commercial premium yields.
Total medical membership increased by 121,000 sequentially to 17.9 million, primarily from the acquisition of Genworth Financial’s Medicare Supplement business. Aetna is the third largest commercial health insurer, based on both enrollment and revenue, trailing WellPoint Inc. (WLP) and UnitedHealth Group Inc. (UNH).
The company’s Group Insurance revenues were up 5.5% year over year to $532.0 million. However, the segment’s operating earnings decreased 4.7% year over year to $42.9 million.
At Large Case Pensions, revenues declined 2.2% year over year to $131.0 million, while operating earnings remained flat year over year at $5.8 million.
The company repurchased shares worth $344 million during the reported quarter.
2012 Guidance Reaffirmed
Aetna reiterated its 2012 core earnings guidance of $5.00 per share. It expects medical membership of 18.2 million.
Our Take
Though Aetna’s earnings fell short of the Estimates, we expect it to record top-line growth going further. The company has made considerable investments in products and technology, with an intention to extend its core health business and also to capitalize on exciting new consumer and provider opportunities emerging in the marketplace.
Aetna’s strong operating results and significant capital generation will allow it to make further investments.
We expect the company to continue performing well in 2012 backed by the performance of the Medicaid and Medicare segments, fast growing health services segment and a strong balance sheet.
To read this article on Zacks.com click here.
Zacks Investment Research
