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Health insurer Aetna Inc.’s third-quarter 2017 earnings of $2.45 per share surpassed the Zacks Consensus Estimate of $2.06 by 19% and also grew 18% year over year. The upside reflects continued strong performance in the company’s Health Care segment as well as lower transaction and integration-related costs in 2017 compared to 2016.
Operational Update
However, operating revenues of $14.9 billion not only missed the Zacks Consensus Estimate of $15.1 billion by approximately 1% but also declined 5% year over year. The downside stemmed from lower premiums in Health Care segment that includes lower membership in Aetna's ACA compliant individual and small group products and the temporary suspension of the health insurer fee (HIF) in 2017.
Adjusted expense ratioimproved 10 basis points (bps) to 17.5% from the prior-year quarter, primarily due to the temporary suspension of the HIF and Aetna's expense management initiatives. This was largely offset by targeted investment spending on the company’s growth initiatives.
Total company expense ratioimproved 50 bps from the year-ago quarter to 17.4%, primarily due to lower transaction and integration-related costs.
Third-quarter after-tax net income margin was 5.6 %, up 180 bps year over year. The adjusted pre-tax marginwas 9.2%, up 70 bps from the prior-year quarter. The upside was primarily driven by strong performance in the Health Care segment. This was, however, partially offset by the negative impact of the temporary suspension of the HIF.
Medical membership totaled 22.2 million on Sep 30, 2017, down 4.1% year over year.
Segmental Performance Update
Health Care segment
Total revenues were $14.3 billion, down 5.3% year over year. Adjusted revenues came at $14.2 billion, down 6% from the prior-year quarter. 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 $1.3 billion, flat year over year. This consistent performance reflects strong performance across Aetna's core Health Care businesses and reduced losses in its individual Commercial products. This was, however, partially offset the negative impact of the temporary suspension of the HIF.
Total healthcare medical benefit ratio (MBR) rose 10 bps to 81.9% on the back of improvement in Commercial benefit ratio owing to reduced losses in Aetna's individual Commercial products and improved performance across its core Commercial business. This was, however, partially offset by a deterioration in the Government MBR.
Group Insurance
Total revenues of $650 million increased 4.7% from the prior-year quarter. Adjusted revenuesof $631 million grew 2.4% year over year driven by higher premiums in Aetna's life and disability products.
Pre-tax adjusted earningswere $34 million, up 54% from the third-quarter 2016 due to higher underwriting margins in disability products, partially offset by lower underwriting margins in life products.
Large Case Pensions
Total revenues came at $80 million, up 14% over the third quarter of 2016. Adjusted revenueswere $79 million, up 18% year over year. The upside was primarily driven by higher net investment income.
Pre-tax adjusted earnings were $5 million, up 67%.
Total assets were $57.4 billion as of Sep 30, 2016, down 17% from the prior-year quarter.
Long-term debt declined 58% year over year to $8.2 billion.
Total debt-to-consolidated capitalization ratiowas 39.5% as of Sep 30, 2017, down 1410 bps from 53.6% at year-end 2016.
2017 Guidance
The company expects 2017 operating earnings to be nearly $9.75, up from the previously guided range of $9.45-$9.55.
It expects adjusted earnings to be nearly $3.3 billion, up from previous projection of $3.2 billion.
Adjusted revenues are expected to be nearly $60.5 billion, down from the earlier guidance of $61 billion.
Adjusted expense ratio is expected to lie within 17.3-17.5%, unchanged from the previous guidance.
Medical membership is projected to be approximately 22.2 million, unchanged from the earlier projection.
Total health care MBR is estimated to be nearly 82.3%, as against the earlier guidance of 82.5-83.5%
Business Update
In October 2017, Aetna entered into a definitive agreement with Hartford Financial Services Group, Inc (HIG - Free Report) . Per the deal, Aetna will sell a substantial portion of its Group Insurance segment consisting of its domestic group life insurance, group disability insurance and absence management businesses to Hartford Financial. The transaction is expected to close in early November 2017.
Among the other firms in the medical sector that have reported third-quarter earnings so far, the bottom lines of Anthem Inc. and UnitedHealth Group Inc. (UNH - Free Report) beat their respective Zacks Consensus Estimate.
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Aetna (AET) Tops Q3 Earnings Estimates, Raises 2017 Guidance
Health insurer Aetna Inc.’s third-quarter 2017 earnings of $2.45 per share surpassed the Zacks Consensus Estimate of $2.06 by 19% and also grew 18% year over year. The upside reflects continued strong performance in the company’s Health Care segment as well as lower transaction and integration-related costs in 2017 compared to 2016.
Operational Update
However, operating revenues of $14.9 billion not only missed the Zacks Consensus Estimate of $15.1 billion by approximately 1% but also declined 5% year over year. The downside stemmed from lower premiums in Health Care segment that includes lower membership in Aetna's ACA compliant individual and small group products and the temporary suspension of the health insurer fee (HIF) in 2017.
Adjusted expense ratioimproved 10 basis points (bps) to 17.5% from the prior-year quarter, primarily due to the temporary suspension of the HIF and Aetna's expense management initiatives. This was largely offset by targeted investment spending on the company’s growth initiatives.
Total company expense ratioimproved 50 bps from the year-ago quarter to 17.4%, primarily due to lower transaction and integration-related costs.
Third-quarter after-tax net income margin was 5.6 %, up 180 bps year over year. The adjusted pre-tax marginwas 9.2%, up 70 bps from the prior-year quarter. The upside was primarily driven by strong performance in the Health Care segment. This was, however, partially offset by the negative impact of the temporary suspension of the HIF.
Medical membership totaled 22.2 million on Sep 30, 2017, down 4.1% year over year.
Segmental Performance Update
Health Care segment
Total revenues were $14.3 billion, down 5.3% year over year. Adjusted revenues came at $14.2 billion, down 6% from the prior-year quarter. 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 $1.3 billion, flat year over year. This consistent performance reflects strong performance across Aetna's core Health Care businesses and reduced losses in its individual Commercial products. This was, however, partially offset the negative impact of the temporary suspension of the HIF.
Total healthcare medical benefit ratio (MBR) rose 10 bps to 81.9% on the back of improvement in Commercial benefit ratio owing to reduced losses in Aetna's individual Commercial products and improved performance across its core Commercial business. This was, however, partially offset by a deterioration in the Government MBR.
Group Insurance
Total revenues of $650 million increased 4.7% from the prior-year quarter. Adjusted revenuesof $631 million grew 2.4% year over year driven by higher premiums in Aetna's life and disability products.
Pre-tax adjusted earningswere $34 million, up 54% from the third-quarter 2016 due to higher underwriting margins in disability products, partially offset by lower underwriting margins in life products.
Large Case Pensions
Total revenues came at $80 million, up 14% over the third quarter of 2016. Adjusted revenueswere $79 million, up 18% year over year. The upside was primarily driven by higher net investment income.
Pre-tax adjusted earnings were $5 million, up 67%.
Aetna Inc. Price, Consensus and EPS Surprise
Aetna Inc. Price, Consensus and EPS Surprise | Aetna Inc. Quote
Financial Position
Total assets were $57.4 billion as of Sep 30, 2016, down 17% from the prior-year quarter.
Long-term debt declined 58% year over year to $8.2 billion.
Total debt-to-consolidated capitalization ratiowas 39.5% as of Sep 30, 2017, down 1410 bps from 53.6% at year-end 2016.
2017 Guidance
The company expects 2017 operating earnings to be nearly $9.75, up from the previously guided range of $9.45-$9.55.
It expects adjusted earnings to be nearly $3.3 billion, up from previous projection of $3.2 billion.
Adjusted revenues are expected to be nearly $60.5 billion, down from the earlier guidance of $61 billion.
Adjusted expense ratio is expected to lie within 17.3-17.5%, unchanged from the previous guidance.
Medical membership is projected to be approximately 22.2 million, unchanged from the earlier projection.
Total health care MBR is estimated to be nearly 82.3%, as against the earlier guidance of 82.5-83.5%
Business Update
In October 2017, Aetna entered into a definitive agreement with Hartford Financial Services Group, Inc (HIG - Free Report) . Per the deal, Aetna will sell a substantial portion of its Group Insurance segment consisting of its domestic group life insurance, group disability insurance and absence management businesses to Hartford Financial. The transaction is expected to close in early November 2017.
Zacks Rank & Performance of Other Insurers
Aetna currently carries a Zacks Rank #2 (Buy). 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 third-quarter earnings so far, the bottom lines of Anthem Inc. and UnitedHealth Group Inc. (UNH - Free Report) beat their respective Zacks Consensus Estimate.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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