FHP Profit Jumps 28% in Quarter

As some health maintenance organizations flounder, FHP International Corp. reported Tuesday that its earnings jumped 28% to $5.3 million for its fiscal 1989 third quarter. Revenue for the quarter, which ended March 31, increased 38% to $186.8 million.

The Fountain Valley-based HMO said its performance was boosted by a 24% increase in membership, which grew to 446,000 enrollees March 31, contrasted with 360,000 a year ago. And the company benefited from rate increases in its commercial and senior plans, Chairman Robert Gumbiner said.

For the first 9 months of fiscal 1989, earnings were ahead 38% to $14.4 million, contrasted with $10.4 million. Revenue was $499.7 million, up 39% from $358.4 million.

FHP reported its increased profits amid a stream of losses from some other for-profit HMO’s, including Maxicare in Los Angeles, Cigna Health Plans of California in Glendale and Greater San Diego Health Plan in San Diego.

Cypress-based PacifiCare has remained profitable, and analysts expect it to post an earnings increase for its fiscal 1989 second quarter, which ended March 31.

Health care analysts said FHP continues to do well because of strategic steps taken by its management, which still follows the careful, moderate-growth strategy that influenced the company’s operations when FHP operated as a nonprofit operation before 1985.

“FHP and PacifiCare operate as regional and local businesses. They did not do what Maxicare did and overexpand,” said Peter Grua, a health care analyst at Alex Brown & Co., a brokerage firm in Baltimore. FHP operates in California, Arizona, Utah and New Mexico.

By growing slowly, FHP has been able to pay for its medical centers soon after opening them. Because many of its facilities are paid for, FHP has a competitive advantage over recently formed HMOs that must make large interest payments on newly built centers, said Lee Grover, a principal in Wm. Mercer Meidinger Hansen, an employee benefits consulting firm in Orange.

FHP stock, which was up on Monday, fell $1 per share Tuesday to $24 in over-the-counter trading.

To capitalize on a stock price that has recently traded at record-high levels, FHP plans a public offering of 2 million shares. The offering could come as early as mid-May, analysts said.

At FHP’s recent trading price of $24, the company could raise $48 million, which Grua said should help the company reduce its debt.

Less than 2 years ago, when FHP stock was trading at 25% of its current level, the company benefited by repurchasing 2.5 million shares, some for as little as $5.75 per share.

FHP INTERNATIONAL CORP. AT A GLANCE

FHP International Corp. is a Fountain Valley-based health maintenance organization with 446,000 members in California, Arizona, Utah and New Mexico. Primarily, FHP operates a staff-model HMO, in which it hires most of the doctors and staff it needs and owns most of its own medical facilities. Chairman Robert Gumbiner started the HMO in 1961 as a nonprofit corporation, and in 1985 he led an 18-member employee group that acquired the operation after it had been converted into a for-profit concern. In 1986, the new owners took the company public.

Assets: $252.9 million

Number of employees: 4,500

Shares outstanding: 10.5 million

52-week price range: $25.25-$8.75

Tuesday’s closing price (over the counter): $24, down $1

Chief executive: Robert Gumbiner

FHP YEARLY RESULTS

NET INCOME

In million of dollars

‘84: 4.3 ‘85: 7.4 ‘86: 9.2 ‘87: 6.9 ‘88: 16.5 Year ends June 30

REVENUE

In million of dollars

‘84: 123.0 ‘85: 181.3 ‘86: 264.7 ‘87: 367.5 ‘88: 503.5 Year ends June 30