* Q1 EPS misses Street: $1.34 vs $1.40 analyst view
* Reserves for medical claim costs in focus
* Aetna backs 2012 profit outlook
* Shares fall 8 percent
(Adds CFO, analyst comments, updates stock price)
By Lewis Krauskopf
April 26 (Reuters) – Aetna Inc signaled that health
claim costs may be on the verge of rising as its quarterly
profit missed Wall Street’s target, sending shares of the No. 3
U.S. health insurer down more than 8 percent.
Health insurers largely posted higher-than-expected earnings
in 2011 because of Americans’ low use of medical services in the
weak economy, leading their shares to far outperform the broader
stock market.
But Aetna executives said on Thursday that they were seeing
a stabilization in medical claims costs after deceleration that
helped profits for the past year.
“Are we seeing a turn in healthcare cost utilization?” said
Tim Nelson, a senior healthcare analyst with Nuveen Asset
Management. “That’s what Aetna investors are worried about,
that’s what managed care investors are worried about.”
Shares of rival health insurers were down modestly after
Aetna’s report. WellPoint Inc and Cigna Corp fell
more than 1.2 percent, while UnitedHealth Group Inc
slipped nearly 1 percent.
Aetna, whose shares had outperformed rivals this year, is
the first major health insurer to miss earnings estimates for
the first quarter, after UnitedHealth and WellPoint posted
higher-than-expected profits.
While UnitedHealth and WellPoint also raised their
respective earnings forecasts for 2012, Aetna merely backed its
outlook.
“They missed and they reiterated guidance, and what the
Street was expecting was a beat and a guidance raise,” Nelson
said. Investors with wide-ranging sector portfolios “are going
to sell on that kind of result.”
In the past year, Aetna was able to recognize gains from the
money it sets aside to cover medical claims, when actual claims
submitted turned out to be lower than the company had forecast.
Analysts were expecting that trend to continue in the first
quarter of 2012, but Aetna said it did not benefit from any such
gains during the period.
“We do not see trend decelerating any further,” Aetna Chief
Executive Officer Mark Bertolini said of medical claims costs on
a conference call. “From a utilization standpoint, we don’t see
anything that is alarming in the marketplace.”
For 2012, the executives said the company was keeping its
current projection for medical claim costs, which calls for a
slight increase over the year before. They noted it was very
early in the year to draw many conclusions and that the company
had so far reserved appropriately.
“We did predict and forecast an increase in utilization into
2012,” Aetna Chief Financial Officer Joseph Zubretsky said in an
interview. “We saw nothing in the first quarter that would allow
us or steer us to change that forecast.”
Aetna shares were down 8.2 percent at $45.33 on Thursday
afternoon on the New York Stock Exchange. Through Wednesday,
Aetna shares had risen about 17 percent this year, compared with
a 14 percent rise for the Morgan Stanley Healthcare index
of health insurers.
MISS DISAPPOINTS
Aetna’s first-quarter net income fell to $511 million, or
$1.43 per share, from $586 million or $1.50 per share a year
earlier.
Excluding items, earnings of $1.34 a share missed the
analysts’ average estimate by 6 cents, according to Thomson
Reuters I/B/E/S.
Revenue rose 6 percent to $8.92 billion.
“The main issue that people are having with this quarter is
they missed consensus slightly and some of what they’re saying
about their reserves for medical costs is confusing,” said Sarah
James, an analyst with Wedbush Securities.
In the interview, Zubretsky said investors should take note
of Aetna’s revenue increase and strong profit margins.
“What I would tell people to be focused on is the quality of
the operating metrics underlying our first-quarter result,” he
said.
Aetna spent 81.5 percent of premium revenue on medical
claims, up from 79.2 percent a year earlier. Its operating
expenses rose nearly 7 percent.
Aetna’s membership stood at 17.92 million at the end of
March, up 0.6 percent from a year ago. The company expects
enrollment to swell to 18.2 million by year-end.
The insurer still expects operating earnings per share of
about $5.00 for 2012. Analysts are looking for $5.15.
(Reporting By Lewis Krauskopf in New York; Editing by Lisa Von
Ahn, Gerald E. McCormick and Matthew Lewis)
