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Humana (HUM) Beats on Earnings, Misses Revenues in Q4
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Humana Inc.’s (HUM - Free Report) fourth-quarter 2016 operating earnings per share of $2.09 beat the Zacks Consensus Estimate of $2.06 roughly by 1.4%. The bottom line also improved 35% year over year due to growth in the individual Medicare Advantage (MA) business as well as higher operating earnings in the Healthcare Services segment.
For 2016, adjusted earnings per share of $9.57 registered 17.6% year-over-year growth.
Operational Update
Revenues inched up 0.8% year over year to $13.46 billion in the fourth quarter due to higher premiums and services revenues. However, the top line missed the Zacks Consensus Estimate by 0.4%.
For 2016, the company reported total revenue of $54.96 billion, up 1.2% year over year.
Humana’s consolidated benefit ratio – the percentage of benefit expenses in premium revenues – was 81.2% in the fourth quarter. This is an improvement of 320 basis points (bps) year over year. Consolidated operating cost ratio deteriorated 90 bps year over year to 14.9% due to higher operating cost ratio in both Retail and Group segments.
Quarterly Segment Results
Retail Segment
The segment’s reported premiums and services revenues increased 2% year over year to $11.54 billion due to higher revenues, which in turn, can be attributed to an increase in average membership.
Benefit ratio came in at 83%, up 310 bps from the prior-year quarter. A year-over-year decrease MAutilization and favorable comparisons of Prior Period Development contributed to the result.
Operating cost ratio of 13.1% deteriorated 60 bps year over year due to the higher operating expenses.
Adjusted pretax income for the segment was $408 million, up 167% year over year.
Group Segment
Reported premiums and services revenues dipped 2% to $1.82 billion, primarily due to lower medical membership in average fully insured and ASO commercial group.
Benefit ratio improved 120 bps year over year to 82%. This was due to lower utilization as well as favorable development in the fourth quarter.
Operating cost ratio deteriorated 220 bps from the prior-year quarter to 26.4%. This was due to unusually low operating expenses in the prior year owing to the temporary suspension of certain discretionary administrative costs.
Adjusted pretax loss for the segment was $13 million, down 150% year over year.
Healthcare Services
Revenues of $6.33 billion increased 6% year over year. The upside was driven by increased mail-order penetration and growth in the company’s individual MA and stand-alone PDP membership.
Operating cost ratio was 95.4%, flat year over year.
Adjusted pretax income for the segment was $278 million, up 9% year over year.
As of Dec 31, 2016, cash, cash equivalents, and investment securities of Humana were $13.68 billion, down 16% from the previous quarter.
As of Dec 31, 2016, cash and short-term investments of $2.01 billion increased 6% from the previous quarter, primarily due to dividends received from subsidiaries and operating cash derived from the company’s non-insurance subsidiaries’ profits.
As of Dec 31, 2016, debt-to-total capitalization ratio was 27.7%, up 110 bps from the previous quarter.
Cash flows from operations totaled $1.94 billion at the end of 2016 compared with cash flow from operations of $868 million in the prior year.
Share Repurchase and Dividend Update
Humana suspended its share repurchase program on Jul 2, 2015 due to the pending acquisition by Aetna, which has now been blocked by the Justice Department.
Notably, the company’s board of directors approved a new $2 billion share repurchase plan with an expiration date of Dec 31, 2016.
Humana paid cash dividend worth $44 million in the third quarter. For 2016, the total amount paid as dividends to shareholders was $172 million.
Among the other firms in the medical sector that have reported their fourth-quarter earnings so far, the bottom line at Aetna Inc. , HCA Holdings Inc. (HCA - Free Report) and UnitedHealth Group Inc. (UNH - Free Report) beat their respective Zacks Consensus Estimate.
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Humana (HUM) Beats on Earnings, Misses Revenues in Q4
Humana Inc.’s (HUM - Free Report) fourth-quarter 2016 operating earnings per share of $2.09 beat the Zacks Consensus Estimate of $2.06 roughly by 1.4%. The bottom line also improved 35% year over year due to growth in the individual Medicare Advantage (MA) business as well as higher operating earnings in the Healthcare Services segment.
For 2016, adjusted earnings per share of $9.57 registered 17.6% year-over-year growth.
Operational Update
Revenues inched up 0.8% year over year to $13.46 billion in the fourth quarter due to higher premiums and services revenues. However, the top line missed the Zacks Consensus Estimate by 0.4%.
For 2016, the company reported total revenue of $54.96 billion, up 1.2% year over year.
Humana’s consolidated benefit ratio – the percentage of benefit expenses in premium revenues – was 81.2% in the fourth quarter. This is an improvement of 320 basis points (bps) year over year. Consolidated operating cost ratio deteriorated 90 bps year over year to 14.9% due to higher operating cost ratio in both Retail and Group segments.
Quarterly Segment Results
Retail Segment
The segment’s reported premiums and services revenues increased 2% year over year to $11.54 billion due to higher revenues, which in turn, can be attributed to an increase in average membership.
Benefit ratio came in at 83%, up 310 bps from the prior-year quarter. A year-over-year decrease MAutilization and favorable comparisons of Prior Period Development contributed to the result.
Operating cost ratio of 13.1% deteriorated 60 bps year over year due to the higher operating expenses.
Adjusted pretax income for the segment was $408 million, up 167% year over year.
Group Segment
Reported premiums and services revenues dipped 2% to $1.82 billion, primarily due to lower medical membership in average fully insured and ASO commercial group.
Benefit ratio improved 120 bps year over year to 82%. This was due to lower utilization as well as favorable development in the fourth quarter.
Operating cost ratio deteriorated 220 bps from the prior-year quarter to 26.4%. This was due to unusually low operating expenses in the prior year owing to the temporary suspension of certain discretionary administrative costs.
Adjusted pretax loss for the segment was $13 million, down 150% year over year.
Healthcare Services
Revenues of $6.33 billion increased 6% year over year. The upside was driven by increased mail-order penetration and growth in the company’s individual MA and stand-alone PDP membership.
Operating cost ratio was 95.4%, flat year over year.
Adjusted pretax income for the segment was $278 million, up 9% year over year.
Humana Inc. Price, Consensus and EPS Surprise
Humana Inc. Price, Consensus and EPS Surprise | Humana Inc. Quote
Financial Update
As of Dec 31, 2016, cash, cash equivalents, and investment securities of Humana were $13.68 billion, down 16% from the previous quarter.
As of Dec 31, 2016, cash and short-term investments of $2.01 billion increased 6% from the previous quarter, primarily due to dividends received from subsidiaries and operating cash derived from the company’s non-insurance subsidiaries’ profits.
As of Dec 31, 2016, debt-to-total capitalization ratio was 27.7%, up 110 bps from the previous quarter.
Cash flows from operations totaled $1.94 billion at the end of 2016 compared with cash flow from operations of $868 million in the prior year.
Share Repurchase and Dividend Update
Humana suspended its share repurchase program on Jul 2, 2015 due to the pending acquisition by Aetna, which has now been blocked by the Justice Department.
Notably, the company’s board of directors approved a new $2 billion share repurchase plan with an expiration date of Dec 31, 2016.
Humana paid cash dividend worth $44 million in the third quarter. For 2016, the total amount paid as dividends to shareholders was $172 million.
Zacks Rank
Humana currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among the other firms in the medical sector that have reported their fourth-quarter earnings so far, the bottom line at Aetna Inc. , HCA Holdings Inc. (HCA - Free Report) and UnitedHealth Group Inc. (UNH - Free Report) beat their respective Zacks Consensus Estimate.
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In this latest Special Report, Zacks’ Aggressive Growth Strategist Brian Bolan explores a full-blown technological breakthrough in the making – autonomous cars. He also spotlights 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>