Aetna Q2 Profit Rises, Tops View; Backs 2016 Operating EPS View

(RTTNews) - Health insurer Aetna Inc. (AET) reported that its net income attributable to the company for the second quarter of 2016 increased to $790.8 million or $2.23 per share from the prior year's $731.8 million or $2.08 per share reflecting the reduction of Aetna's reserve for anticipated future losses on discontinued products, the increase in operating earnings described below and an increase in net realized capital gains, partially offset by litigation-related proceeds recorded during the second quarter of 2015 and an increase in transaction and integration-related costs in 2016.

"While we are pleased with our overall results, in light of updated 2016 projections for our individual products and the significant structural challenges facing the public exchanges, we intend to withdraw all of our 2017 public exchange expansion plans, and are undertaking a complete evaluation of future participation in our current 15-state footprint," sid Mark T. Bertolini, Aetna chairman and CEO.

Operating earnings were $783.3 million or $2.21 per share for the second quarter of 2016 compared with $722.1 million or $2.05 per share for the second quarter of 2015. The increase in operating earnings was primarily due to higher fees and other revenue in Aetna's Health Care segment and lower general and administrative expenses, partially offset by lower underwriting margins in Aetna's Health Care segment. Analysts polled by Thomson Reuters expected the company to report earnings of $2.12 per share for the second-quarter. Analysts' estimates typically exclude special items.

Total revenue for the quarter rose to $15.95 billion from $15.24 billion last year. The increase in total revenue was primarily due to higher Health Care premium yields and membership growth in Aetna's Government business, partially offset by membership declines in Aetna's Commercial Insured products. Wall Street expected revenues of $15.69 billion.

Aetna said that it reaffirmed full-year 2016 operating earnings per share projection of $7.90 to $8.10. Analysts expect the company to report earnings of $8.05 per share for fiscal year 2016. The company projects full-year 2016 net income per share of $6.28 to $6.48.

Aetna noted that it continue to expect strong operating performance for the remainder of 2016.

In addition, Aetna and Humana Inc. (HUM) announced that they have entered into separate agreements to sell certain of their respective Medicare Advantage assets to Molina Healthcare, Inc. (MOH) for a total estimated $117 million in cash for both transactions, based on the estimated number of members in the plans involved in the transactions.

As a result of the transactions, Molina is expected to gain approximately 290,000 Medicare Advantage members in 21 states, preserving robust competition for seniors choosing to receive Medicare coverage through Medicare Advantage plans and addressing a key concern of the U.S. Department of Justice in its challenge to the Aetna-Humana transaction.

On July 21, The U.S. Department of Justice and attorneys general from multiple states and the District of Columbia sued to block Anthem's proposed acquisition of Cigna and Aetna's proposed acquisition of Humana, alleging that the transactions would increase concentration and harm competition across the country, reducing from five to three the number of large, national health insurers in the nation.

Aetna and Humana Inc. then said that it planned to vigorously defend the companies' pending merger in response to a U.S. Department of Justice lawsuit seeking to block the transaction. A combined company is in the best interest of consumers, particularly seniors seeking affordable, high-quality Medicare Advantage plans.