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Anthem (ANTM) Q2 Earnings Beat, Membership Declines, View Up

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Anthem Inc. came up with earnings of $4.25 per share, which surpassed the Zacks Consensus Estimate of $4.19. Earnings were up 26% year over year. Better-than-expected results were driven by strong medical cost performance.

Anthem posted revenues of $22.71 billion, a tad shy of the Zacks Consensus Estimate of $22.75 billion. The top line was up 2.3% year over year, driven by premium increases and the return of the health insurance tax in 2018 as well as acquisitions, partially offset by a reduced footprint in the Individual marketplace.

Anthem, Inc. Price, Consensus and EPS Surprise

Quarterly Operational Update

Medical enrollment declined 2.2% year over year to 39.5 million members. The downside was primarily caused by a reduced footprint in the Individual ACA (Affordable Care Act)-compliant marketplace.

Anthem’s benefit expense ratio of 83.4% improved 270 basis points (bps) from the prior-year quarter, driven by the return of the health insurance tax in 2018 and improved medical cost performance across all its business segments.

SG&A expense ratio of 15.1% deteriorated 130 bps from the year-ago quarter due to the return of the health insurance tax in 2018 and the impact of increased investment spend this year to support growth initiatives.

Strong Segment Performance

Commercial & Specialty Business

Operating revenues were $9.2 billion in the first quarter, down 11.1% year over year.

Operating gain totaled $1.05 billion, up 8.8% year over year led by improved medical cost performance, partly offset by contraction on insurance exchanges and higher investment expenses.

Operating margin was 11.5%, up 271 bps year over year.

Government Business

Operating revenues were $13.5 billion, up 14% from the prior-year quarter.
Operating gain was $537.4 million, up 83.2% year over year. The upside reflects the impact of the HealthSun and America's 1st Choice acquisitions as well as organic membership growth in the Medicare business.

Operating margin was 4%, up 150 bps year over year.

Other

Operating revenues were $8.9 million, up 53.4% from the prior-year period.
The segment reported an operating loss of $31.2 million, narrower than the same of $34.2 million in the prior-year quarter.

Financial Update

As of Jun 30, 2018, Anthem had cash and cash equivalents of $4.68 billion, up 29.8% from year-end 2017.

As of Jun 30, 2018, its long-term debt increased 0.8% to $17.5 billion from year-end 2017.

Operating cash outflow was $2.8 billion in the quarter under review, down 10.6% year over year.

Share Repurchase and Dividend Update

During the reported quarter, Anthem repurchased 1.7 million shares of its common stock for $400 million.

As of Jun 30, 2018, it had approximately $6.4 billion of share repurchase authorization remaining.

During the quarter, Anthem paid a quarterly dividend of 75 cents per share.

Guidance for 2018

Anthem expects adjusted net income to be greater than $15.40 per share, up from the previous projection of more than $15.30

Medical membership is now expected in the range of 39.9-40.1 million, down from the previous projection of 40.1-40.3 million.

Operating revenues were kept unchanged in the range of $91-$92 billion.
Also, its estimates for operating cash flow of more than $4 billion were left unchanged.

Zacks Rank, Peer Performance, Upcoming Release

Anthem carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Among other players in the health insurance sector that have reported second-quarter earnings so far, UnitedHealth Group (UNH - Free Report) and Centene (CNC - Free Report) have surpassed their respective Zacks Consensus Estimate by 3.63% and 2.3%.

Another stock Wellcare Health Plans, Inc. , sporting a Zacks Rank #1 (Strong Buy) is expected to report earnings on Jul 31. We predict a likely positive surprise for Wellcare given its Earnings ESP of +1.09% and a favorable Zacks Rank.
 

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