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Humana (HUM) Q2 Earnings & Revenues Beat, Revises View
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Humana Inc.’s (HUM - Free Report) second-quarter 2016 operating earnings per share of $2.30 beat the Zacks Consensus Estimate of $2.26 by 1.8%. The bottom line also improved 30% year over year.
This upside was mainly driven by the improvement in Humana’s clinical programs coupled with lower healthcare cost.
Revenues increased 2% year over year to $14.01 billion. Higher premiums and services revenues contributed to top-line growth. Revenues surpassed the Zacks Consensus Estimate by 2.9%.
Quarterly Review
Humana’s consolidated benefit ratio – the percentage of benefit expenses in premium revenues – was 84.3%. This marks an improvement of 90 basis points (bps) year over year. Lower benefit ratios at both the Retail and Group segments attributed to the improvement.
Consolidated operating cost ratio – the percentage of operating costs in total revenue less investment income – also decreased 90 bps year over year to 12.4% driven by favorable results at both the Retail and Group segments. The sale of Concentra in Jun 2015 which carries a very high operating cost ratio also contributed to the improvement.
Quarterly Results by Segment
Retail Segment: Reported premiums and services revenues increased 4% year over year to $12.03 billion in the second quarter. The upside primarily reflects an increase in average Medicare Advantage membership and per-member premium increases.
Benefit ratio came in at 86.8% as against 87.1% in the prior-year quarter. This was because operating initiatives on businesses within the segment resulted in favorable prior period development and lower current-year utilization in pricing.
Operating cost declined 20 bps year over year at 10.3%. Administrative cost efficiencies from medical membership growth and continuous operational efficiency efforts primarily supported cost reduction.
Group Segment: Reported premiums and services revenues dipped 1% to $1.83 billion, primarily due to decline in average fully insured and Administrative Services Only commercial group medical membership. However, an increase in fully insured group medical per-member premiums limited the downside.
Benefit ratio was 78.8%, down 260 bps year over year due to favorable current-year medical claims development. Moreover, favorable risk adjustment accruals in the second quarter contributed to this increase.
Healthcare Services: Revenues from this segment increased 6% year over year to $6.24 billion, mainly due to growth in the company’s individual Medicare Advantage and stand-alone PDP membership
Operating cost ratio was 95.3%, down 20 bps year over year.
Financial Update
As of Jun 30, 2016, cash, cash equivalents and investment securities of Humana were $11.90 billion, up from $11.68 billion as of Dec 31, 2015 but down 5% from $12.48 billion as of Mar 31, 2016.
As of Jun 30, 2016, the company had $300 million outstanding under its commercial paper program.
Share Repurchase and Dividend Update
Humana suspended its share repurchase program on Jul 2, 2015 due to the pending acquisition by Aetna. Notably, the company has $1.04 billion remaining under its authorization.
Humana paid cash dividend worth $43 million in the second quarter.
Guidance Revised
Humana now projects 2016 adjusted earnings per share of “at least $9.25.” Net membership growth in individual Medicare Advantage is expected in the range of 75000–90000 and net membership growth in stand-alone PDP offerings are projected between 400,000 and 425,000. Membership in Group Medicare Advantage is estimated to be down 120,000 to 125,000, while Individual commercial membership is expected to decline 200,000 to 300,000. Revenues are expected to be in the range of $54–$54.5 billion (up from at least $53.5 billion).
Adjusted earnings per share are estimated to be at least $2.77 for the third quarter of 2016.
Among the other health maintenance organizations (HMOs), UnitedHealth Group Inc. (UNH - Free Report) , Aetna Inc. and Anthem Inc surpassed their respective Zacks Consensus Estimate in the second quarter of 2016.
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Humana (HUM) Q2 Earnings & Revenues Beat, Revises View
Humana Inc.’s (HUM - Free Report) second-quarter 2016 operating earnings per share of $2.30 beat the Zacks Consensus Estimate of $2.26 by 1.8%. The bottom line also improved 30% year over year.
This upside was mainly driven by the improvement in Humana’s clinical programs coupled with lower healthcare cost.
Revenues increased 2% year over year to $14.01 billion. Higher premiums and services revenues contributed to top-line growth. Revenues surpassed the Zacks Consensus Estimate by 2.9%.
Quarterly Review
Humana’s consolidated benefit ratio – the percentage of benefit expenses in premium revenues – was 84.3%. This marks an improvement of 90 basis points (bps) year over year. Lower benefit ratios at both the Retail and Group segments attributed to the improvement.
Consolidated operating cost ratio – the percentage of operating costs in total revenue less investment income – also decreased 90 bps year over year to 12.4% driven by favorable results at both the Retail and Group segments. The sale of Concentra in Jun 2015 which carries a very high operating cost ratio also contributed to the improvement.
Quarterly Results by Segment
Retail Segment: Reported premiums and services revenues increased 4% year over year to $12.03 billion in the second quarter. The upside primarily reflects an increase in average Medicare Advantage membership and per-member premium increases.
Benefit ratio came in at 86.8% as against 87.1% in the prior-year quarter. This was because operating initiatives on businesses within the segment resulted in favorable prior period development and lower current-year utilization in pricing.
Operating cost declined 20 bps year over year at 10.3%. Administrative cost efficiencies from medical membership growth and continuous operational efficiency efforts primarily supported cost reduction.
Group Segment: Reported premiums and services revenues dipped 1% to $1.83 billion, primarily due to decline in average fully insured and Administrative Services Only commercial group medical membership. However, an increase in fully insured group medical per-member premiums limited the downside.
Benefit ratio was 78.8%, down 260 bps year over year due to favorable current-year medical claims development. Moreover, favorable risk adjustment accruals in the second quarter contributed to this increase.
Healthcare Services: Revenues from this segment increased 6% year over year to $6.24 billion, mainly due to growth in the company’s individual Medicare Advantage and stand-alone PDP membership
Operating cost ratio was 95.3%, down 20 bps year over year.
Financial Update
As of Jun 30, 2016, cash, cash equivalents and investment securities of Humana were $11.90 billion, up from $11.68 billion as of Dec 31, 2015 but down 5% from $12.48 billion as of Mar 31, 2016.
As of Jun 30, 2016, the company had $300 million outstanding under its commercial paper program.
Share Repurchase and Dividend Update
Humana suspended its share repurchase program on Jul 2, 2015 due to the pending acquisition by Aetna. Notably, the company has $1.04 billion remaining under its authorization.
Humana paid cash dividend worth $43 million in the second quarter.
Guidance Revised
Humana now projects 2016 adjusted earnings per share of “at least $9.25.” Net membership growth in individual Medicare Advantage is expected in the range of 75000–90000 and net membership growth in stand-alone PDP offerings are projected between 400,000 and 425,000. Membership in Group Medicare Advantage is estimated to be down 120,000 to 125,000, while Individual commercial membership is expected to decline 200,000 to 300,000. Revenues are expected to be in the range of $54–$54.5 billion (up from at least $53.5 billion).
Adjusted earnings per share are estimated to be at least $2.77 for the third quarter of 2016.
HUMANA INC NEW Price, Consensus and EPS Surprise
HUMANA INC NEW Price, Consensus and EPS Surprise | HUMANA INC NEW Quote
Zacks Rank
Humana currently carries a Zacks Rank #2 (Buy).
Performance by Other HMOs
Among the other health maintenance organizations (HMOs), UnitedHealth Group Inc. (UNH - Free Report) , Aetna Inc. and Anthem Inc surpassed their respective Zacks Consensus Estimate in the second quarter of 2016.
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