Humana Releases 3Q Financial Results and Provides 2010 Guidance

Nov 04, 2009 (Close-Up Media via COMTEX) -- HUM | Quote | Chart | News | PowerRating -- Humana Inc. has reported diluted earnings per common share (EPS) for the quarter ended September 30, (3Q09) of $1.78, consistent with management's guidance of $1.75 to $1.80.

In a release on November 2, the Company noted that the company earned $1.09 per share for the quarter ended September 30, 2008 (3Q08) which reflected $0.40 per share in realized losses primarily associated with other-than-temporary impairments in investments and sales of distressed financial institution securities. The 3Q08 results also included high stand-alone Prescription Drug Plan (PDP) claim expenses.

For the nine months ended September 30, (YTD09) the company reported $4.67 in EPS compared to $2.79 in EPS for the nine months ended September 30, 2008 (YTD08). The YTD08 results reflected both high stand-alone PDP claim expenses and lower investment income primarily due to significant realized losses on investments.

"Our results this quarter reflect continued solid performance in our Government businesses, offsetting continuing challenges in our Commercial Segment," said Michael B. McCallister, president and chief executive officer of Humana. "We continue to anticipate consolidated results in line with our previous expectations and thus are reaffirming our 2009 EPS guidance."

The company anticipates EPS of approximately $6.15 for the year ending December 31, (FY09). Looking ahead to the year ending December 31, 2010 (FY10), the company projects EPS to be in the range of $5.05 to $5.25. The 2010 estimate includes military services EPS between breakeven and $0.10 per share (including the impact of asset write-downs and other charges) and excludes any potential impact from pending health legislation or regulatory reform.

"Looking to 2010, we're forecasting substantial net-new Medicare Advantage member growth, attributable to both large-group and individual customers," McCallister said. "In addition, as we've said in the past, we target an overall Medicare pretax operating margin of approximately 5 percent, which next year will include a significant increase in group membership, a traditionally lower margin business, a moderating margin for our stand-alone PDPs, and an individual Medicare margin that approximates the overall target. We also anticipate stabilizing our Commercial operating results with administrative cost reductions and continuation of pricing actions."

Consolidated Highlights

Revenues - 3Q09 consolidated revenues rose 8 percent to $7.72 billion from $7.15 billion in 3Q08, with total premium and administrative services fees up 7 percent compared to the prior year's quarter. The increase in premiums and administrative services fees primarily reflects an increase in both average Medicare Advantage membership and per-member premiums for these products.

Consolidated revenues for YTD09 rose 9 percent to $23.33 billion from $21.46 billion for YTD08 with total premiums and administrative services fees up 8 percent compared to the prior year's period, also driven primarily by the increases in average Medicare Advantage enrollment and per-member premiums.

Benefit expenses - The 3Q09 consolidated benefit ratio (benefit expenses as a percent of premium revenues) of 82.1 percent decreased from 83.1 percent for the prior year's quarter, as expected. This 100 basis point decrease was primarily driven by a decrease of 220 basis points in the Government Segment, partially offset by a 250 basis point increase in the Commercial Segment benefit ratio.

The consolidated benefit ratio for YTD09 of 83.1 percent was 180 basis points lower than the YTD08 consolidated benefit ratio of 84.9 percent, reflecting a 250 basis point decrease in the Government Segment's benefit ratio year over year while the Commercial Segment's benefit ratio was unchanged YTD09 compared to YTD08.

Selling, general, & administrative (SG&A) expenses - The 3Q09 consolidated SG&A expense ratio (SG&A expenses as a percent of premiums, administrative services fees and other revenue) of 13.7 percent remained unchanged from 3Q08. The YTD09 consolidated SG&A expense ratio of 13.5 percent increased 10 basis points from the YTD08 ratio of 13.4 percent.

Balance Sheet

- At September 30, the company had cash, cash equivalents, and investment securities of $8.67 billion, up 17 percent from $7.41 billion in such assets at June 30.

- Debt-to-total capitalization at September 30, was 23.2 percent, down 180 basis points from 25.0 percent at June 30, due primarily to the favorable operating results during 3Q09.

Cash Flows from Operations

Cash flows provided by operations for 3Q09 of $940.1 million compared to cash flows provided by operations of $577.3 million in 3Q08 with the increase primarily due to higher net income as well as the positive impact of changes in working capital accounts.

Share Repurchase Program

In the third quarter of 2008, the company's Board of Directors authorized the repurchase of up to $250 million of the company's common shares exclusive of shares repurchased in connection with employee stock plans. Due to volatility in the financial markets, the company has not repurchased any shares under the third quarter 2008 authorization. The share repurchase program expires on December 31.

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