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Aetna (AET) Q2 Earnings Beat Estimates, Membership Declines

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Health insurer Aetna Inc.’s second-quarter 2018 earnings of $3.43 per share beat the Zacks Consensus Estimate by 11.7%. The company reported earnings of $3.42 in the year-ago quarter.

The earnings beat was mainly achieved on the back of a lower tax rate, which was partly offset by an increase in expenses. There was no contribution from revenues as it remained flat year over year at $15.46 billion. The same met the Zacks Consensus Estimate. Higher revenues from Aetna's Heath Care was substantially offset by lower revenues as a result the Group Insurance sale, which occurred during fourth-quarter 2017.

Medical membership of 22.1 million at Jun 30, 2018 decreased slightly from Mar 31, 2018. The decrease primarily reflects decline in Aetna's Commercial Insured products largely offset by increases in Aetna's Commercial ASC and Medicare products.

The adjusted expense ratio was 17.8%, up 130 basis points year over year. The increase was primarily due to the reinstatement of the health insurer fee for 2018.

Aetna Inc. Price, Consensus and EPS Surprise

Effective tax rate was 27.0% for second-quarter 2018 compared with 35% in the year-ago quarter courtesy of the tax reform.

Health Care

Adjusted revenues were $15.4 billion, up 4.1% year over year. This upside was attributable to higher membership in the company’s Medicare products, a positive impact of the reinstatement of HIF (Health Insurer Fee) in 2018 along with the new accounting guidance with regard to revenue recognition for the quarter under review. However, lower membership in Aetna's ACA compliant individual and small group products as well as the company’s Medicaid products, partially offset this upside.

Pre-tax adjusted earnings of $1.6 million, down 11%  year over year  due to lower favorable development of prior-periods' health care cost estimates in Aetna's Government products as well as its individual and small group ACA compliant products. Also, investments in Aetna's Medicare growth initiatives weighed on the earnings.

Total healthcare medical benefit ratio (MBR) fell 30 basis points year over year to 79.7%.

Financial Position

Total assets were $58.3 billion as of Jun 30, 2018, up 5.7% year over year.

Long-term debt decreased 4.6% from the year-end 2017 levels to $7.8 billion.

Debt-to-capitalization ratio was 31.9% as of Jun 30, 2018 was down 510 basis points from Dec 31, 2017 levels.

Zacks Rank

Aetna currently carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Health Maintenance Organizations

Among other players from the industry having reported second-quarter earnings so far, the bottom line of Anthem, Inc. (ANTM - Free Report) , Centene Corporation (CNC - Free Report)    and UnitedHealthGroup Inc. (UNH - Free Report) beat the respective Zacks Consensus Estimate.

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