Humana Inc. Posts Mixed Set Of Numbers In Q1 Of FY2015

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May 05, 2015

The medicare focused insurer, Humana Inc. (HUM, Financial), posted its first-quarter numbers last Wednesday only to disappoint the investors and analysts since the earnings fell below the Street expectations. Though the insurer did witness a climb in the membership count, its quarter earnings felt the heat as operating costs have seen a surge during the quarter. However, the insurer’s revenue was able to top estimates and thus Humana portrayed a mixed picture during the earnings call. Let’s quickly share the facts that were shared during the presentation which reflect that the future of Humana still remains promising in spite of the several challenges it’s facing in the medical insurance domain.

The mixed number set

The company saw growth of membership during the quarter by about 19.8% through its retail operations while group membership fell 7.9%. The total count of members enrolled with the company’s medical plans stood at 14.2 million as on March 31, up from 13.1 million enrollments a year earlier.

Though there was a brisk growth in the membership count in the quarter, the operating expenses increased 18.7% to $13.04 billion, as benefits costs rose 20.6%. The net income stood at $430 million, or $2.82 a share, from $368 million, or $2.35 a share, a year earlier. In fact, excluding the tax benefit obtained by selling Concentra Inc. unit in March this year, the earnings of the company stood at $2.47 a share. The profits improved on a year-over-year basis, but the earnings failed to meet the analysts’ consensus which was hooked to $2.56 per share for the quarter.

Nevertheless, the revenue rose 18.1% on a year-over-year basis to $13.83 billion and surpassed the analysts’ estimate of $13.51 billion as revenue for the quarter.

The fall in earnings was attributed by the rise in the consolidated medical-loss ratio in the first quarter that stood at 83.1%, almost 80 basis points more compared to the same quarter last year. The lower than expected quarterly earnings drove the stock southwards to close down by 7.2% at $168.05 on April 29.

In the healthcare services segment the revenue improved 26.3% to $5.88 billion, driven majorly by the growth in the company’s Medicare membership. Individual Medicare Advantage membership was up by about 15% while state based Medicaid membership went up 161% in the quarter. CEO, Bruce D. Broussard, commented during the earnings call- “These achievements contributed meaningfully to the advancement of our integrated care delivery model with its data-driven focus on the consumer, powered by our disciplined approach to capital allocation –Â which, taken together, represents a sustainable competitive advantage for Humana…”

Future guidance reaffirmed

Though the company continues to face challenges in the number of hospital admissions through the upcoming quarters, the management have reiterated on their full-year guidance which stands at $8.50-$9 per share as earnings which would represent a surge of 17% year-over-year for the 2015 fiscal year.

However, the management have trimmed their revenue guidance to between $54.25 billion- $54.75 billion from the previous outlook of $54.5-$55 billion. The Street expects the full year earnings and revenue to be around $8.87 a share and $54.76 billion, respectively.

During the earnings call, the company also reaffirmed its 2015 Individual Medicare Advantage membership growth estimate to be in the range of 300,000-350,000 for the entire fiscal year.

Conclusion

The quarter was in fact a mixed one for the medical insurer which expects to see heydays in terms of earnings in the coming quarters. As of now, the membership count is showing a brisk movement northward that is expected to gather momentum as the company moves ahead in the fiscal year. Let’s stay tuned and keep an eye on the upcoming developments of Humana Inc. in the fiscal year.