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Aetna (AET) Q4 Earnings Top Estimates, Enrollment Declines
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Health insurer Aetna Inc.’s fourth-quarter earnings of $1.25 per share beat the Zacks Consensus Estimate of $1.18. Earnings, however, declined 23% from the prior-year quarter.
The decline in earnings was primarily due to lower favorable development of prior-period health care cost estimates in Aetna's Health Care segment and targeted investment spending on growth initiatives. These were to some extent offset by lower losses in the company’s individual commercial products.
Weak Revenues
Aetna recorded revenues of $14.74 billion, which missed the Zacks Consensus Estimate of $14.89 billion. Also, revenues compared unfavorably with the year-ago number of $15.72 billion. The downside was primarily due to lower premiums in Aetna's Health Care segment, including lower membership in Aetna's ACA compliant individual and small group products, and the temporary suspension of the Health Insurer Fee (HIF) in 2017.
Total expense ratio of 20.5% declined 240 basis points year over year. Pre-tax margin of 4.8% decreased 160 basis points year over year.
The company’s total enrollment decreased to 49.4 million from 52.79 million in the year-ago quarter.
Adjusted revenues were $14.5 billion, down 4% year over year. The downside was due to lower membership in Aetna's ACA compliant individual and small group products, lower membership in Medicaid products and the temporary suspension of the HIF. This was somewhat offset by higher premium yields in Commercial and Government businesses and membership growth in Medicare products.
Pre-tax adjusted earnings were $662 million, down 31.3% year over year due to lower favorable development of prior-period health care costs estimates, higher targeted investment spending on Aetna's growth initiatives and the negative impact of the temporary suspension of the HIF in 2017, partially offset by reduced losses in Aetna's individual commercial products.
Total healthcare medical benefit ratio (MBR) rose 220 basis points year over year to 84.3% due to deterioration in Commercial and Government benefit ratios.
Group Insurance
During the fourth quarter, the company completed the sale of a substantial portion of its Group Insurance segment consisting of its domestic group life insurance, group disability insurance and absence management businesses.
This sale adversely impacted the quarter’s revenues and pre-tax adjusted earnings of $237 million and $16 million, respectively, which were down 61.8% and 57%, respectively.
Large Case Pensions
Adjusted revenues came at $71 million, up 11% year over year led by higher premiums in fourth-quarter 2017.
Financial Position
Total assets were $55.1 billion as of Dec 31, 2017, down 20% year over year.
Long-term debt declined 57% year over year to $8.2 billion.
Debt-to-capitalization ratio was 37% of Dec 31, 2017 compared with 53.6% as of Dec 31, 2016.
Business Update
During the quarter, the company sold a substantial portion of its Group Insurance segment consisting of its domestic group life insurance, group disability insurance and absence management businesses through an indemnity reinsurance arrangement. The sale is expected to result in an after-tax gain of approximately $710 million ($1.1 billion pretax).
Also, Aetna entered into an agreement, in the quarter, to be acquired by CVS Health Corp. (CVS - Free Report) for nearly $69 billion. The transaction is expected to close in the second half of 2018.
Another health insurer UnitedHealth Group Inc. (UNH - Free Report) beat estimates by 3.6%. Anthem Inc. is expected to come up with a positive surprise in the fourth quarter given its Earnings ESP of 1.29% and a Zacks Rank #2 (Buy).
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Aetna (AET) Q4 Earnings Top Estimates, Enrollment Declines
Health insurer Aetna Inc.’s fourth-quarter earnings of $1.25 per share beat the Zacks Consensus Estimate of $1.18. Earnings, however, declined 23% from the prior-year quarter.
The decline in earnings was primarily due to lower favorable development of prior-period health care cost estimates in Aetna's Health Care segment and targeted investment spending on growth initiatives. These were to some extent offset by lower losses in the company’s individual commercial products.
Weak Revenues
Aetna recorded revenues of $14.74 billion, which missed the Zacks Consensus Estimate of $14.89 billion. Also, revenues compared unfavorably with the year-ago number of $15.72 billion. The downside was primarily due to lower premiums in Aetna's Health Care segment, including lower membership in Aetna's ACA compliant individual and small group products, and the temporary suspension of the Health Insurer Fee (HIF) in 2017.
Total expense ratio of 20.5% declined 240 basis points year over year. Pre-tax margin of 4.8% decreased 160 basis points year over year.
The company’s total enrollment decreased to 49.4 million from 52.79 million in the year-ago quarter.
Aetna Inc. Price, Consensus and EPS Surprise
Aetna Inc. Price, Consensus and EPS Surprise | Aetna Inc. Quote
Segmental Performance Update
Health Care
Adjusted revenues were $14.5 billion, down 4% year over year. The downside was due to lower membership in Aetna's ACA compliant individual and small group products, lower membership in Medicaid products and the temporary suspension of the HIF. This was somewhat offset by higher premium yields in Commercial and Government businesses and membership growth in Medicare products.
Pre-tax adjusted earnings were $662 million, down 31.3% year over year due to lower favorable development of prior-period health care costs estimates, higher targeted investment spending on Aetna's growth initiatives and the negative impact of the temporary suspension of the HIF in 2017, partially offset by reduced losses in Aetna's individual commercial products.
Total healthcare medical benefit ratio (MBR) rose 220 basis points year over year to 84.3% due to deterioration in Commercial and Government benefit ratios.
Group Insurance
During the fourth quarter, the company completed the sale of a substantial portion of its Group Insurance segment consisting of its domestic group life insurance, group disability insurance and absence management businesses.
This sale adversely impacted the quarter’s revenues and pre-tax adjusted earnings of $237 million and $16 million, respectively, which were down 61.8% and 57%, respectively.
Large Case Pensions
Adjusted revenues came at $71 million, up 11% year over year led by higher premiums in fourth-quarter 2017.
Financial Position
Total assets were $55.1 billion as of Dec 31, 2017, down 20% year over year.
Long-term debt declined 57% year over year to $8.2 billion.
Debt-to-capitalization ratio was 37% of Dec 31, 2017 compared with 53.6% as of Dec 31, 2016.
Business Update
During the quarter, the company sold a substantial portion of its Group Insurance segment consisting of its domestic group life insurance, group disability insurance and absence management businesses through an indemnity reinsurance arrangement. The sale is expected to result in an after-tax gain of approximately $710 million ($1.1 billion pretax).
Also, Aetna entered into an agreement, in the quarter, to be acquired by CVS Health Corp. (CVS - Free Report) for nearly $69 billion. The transaction is expected to close in the second half of 2018.
Zacks Rank, Peer Performance, Upcoming Release
Aetna currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Another health insurer UnitedHealth Group Inc. (UNH - Free Report) beat estimates by 3.6%. Anthem Inc. is expected to come up with a positive surprise in the fourth quarter given its Earnings ESP of 1.29% and a Zacks Rank #2 (Buy).
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The most popular cryptocurrency skyrocketed last year, giving some investors the chance to bank 20X returns or even more. Those gains, however, came with serious volatility and risk. Bitcoin sank 25% or more 3 times in 2017.
Zacks’ has just released a new Special Report to help readers capitalize on the explosive profit potential of Bitcoin and the other cryptocurrencies with significantly less volatility than buying them directly.
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