NEW YORK (Reuters) - Health insurer Humana Inc <HUM.N> said on Monday that first-quarter profit rose nearly 13 percent, beating dramatically reduced expectations, helped by its commercial plans for employers and a lower-than-expected tax rate.
By Lewis Krauskopf
NEW YORK (Reuters) - Health insurer Humana Inc <HUM.N> said on Monday that first-quarter profit rose nearly 13 percent, beating dramatically reduced expectations, helped by its commercial plans for employers and a lower-than-expected tax rate.
Shares rose 3 percent in premarket trade as the company also nudged up its full-year profit outlook, due to non-operational items including fewer shares outstanding and lower taxes.
The share climb amounted to a small rebound in the stock price, which has been sliced in half since mid-January. Humana in March slashed its first-quarter forecast by about half on high costs for its Medicare prescription drug plans.
!ADVERTISEMENT!"We expect (the first quarter report) will be a relief relative to concerns Humana might lower the outlook further," said Goldman Sachs analyst Matthew Borsch, who rates the stock a "buy," in a research note
The report from Humana, one of the largest U.S. providers of Medicare plans for the elderly, follows mixed quarterly results from rivals. Industry shares have been hammered this year on profit warnings and fears of a downturn.
Humana's first-quarter net income rose to $80.2 million, or 47 cents per share, from $71.2 million, or 42 cents per share, a year earlier. Analysts expected 45 cents per share, according to Reuters Estimates.
Revenue rose 12 percent to $6.96 billion.
Pretax earnings for the commercial segment rose 35 percent to $127.2 million. Commercial membership stood at 3.46 million at the end of March, up 6 percent from a year earlier and generally unchanged from the end of 2007.
"Humana's commercial business performed above expectations," Wachovia analyst Matt Perry said in a research note.
But the Louisville, Kentucky-based company posted a pretax loss of $3.2 million in its government segment, primarily on expenses for its Medicare drug plans.
Membership in Humana's full-service Medicare Advantage plans was nearly 1.27 million at the end of the quarter, up 14 percent from a year earlier and 11 percent from year-end.
Humana raised its 2008 earnings forecast to $4.10 to $4.35 per share. It had previously expected $4 to $4.25, and analysts were looking for $4.11.
It forecast second-quarter earnings of $1.15 to $1.20 per share. Analysts had expected $1.12.
Until this year, Humana had been a stock market star, with shares more than tripling from the end of 2003 to the end of last year. The company has capitalized on a federal expansion of Medicare.
Humana in March blamed its Medicare drug-plan issues on errors in designing the benefits. It maintained the problems were correctable and that its growth trajectory would resume in 2009.
Wachovia's Perry called the drug-plan problems "100 percent fixable for 2009."
Humana shares rose to $46.24 in early electronic trading from its Friday close of $44.88 on the New York Stock Exchange.
Through Friday's trading, the shares have fallen 40 percent in 2008, underperforming a decline of some 32 percent for the Morgan Stanley Healthcare Payor index <.HMO>.
(Reporting by Lewis Krauskopf; Editing by Lisa Von Ahn and Dave Zimmerman)
