FHP Posts 2nd-Quarter Gain in Profits, Revenue

Citing increased membership and higher rates, FHP International Corp. said Friday that its net income was up 28% and revenue increased 40% in the second quarter ended Dec. 31.

The company, operator of a health maintenance organization, reported net income of $8.3 million on revenue of $312.2 million for the three-month period, compared to net earnings of $6.5 million on sales of $222.5 million for the same quarter the previous year.

FHP’s net income for the six months ended Dec. 31 was $16.7 million on revenue of $606 million, compared to net earnings of $13.3 million on sales of $432.6 million for the same period the year before.

Wall Street reacted rather indifferently to FHP’s financial results, with FHP’s stock closing Friday at $17, down 50 cents from Thursday. However, securities analysts noted that the prices of several HMO stocks, including FHP, which was trading at about $12 two weeks ago, have climbed sharply recently on expectations of higher-than-anticipated quarterly earnings.

“FHP’s second-quarter gains were derived from increased membership, rate increases, improved control of administrative expenses and higher net interest income,” said Westcott W. Price II, chief executive officer of the Fountain Valley-based HMO.

Price said the gains were achieved despite higher costs from contracting with outside hospital and emergency services to serve a membership that increased by 18% last year.

He said that to try to better contain costs, FHP will continue to invest in construction of additional facilities of its own. The company is doubling of the size of its Fountain Valley hospital and plans to build an acute-care hospital in Utah.

“FHP’s numbers were right in line with expectations,” said Charles Mangum, a health care analyst with Fidelity Management Research Co., a Boston-based mutual-fund company.

Mangum said that FHP is “a great operating outfit” but that it faces a few problems. He said that FHP will have difficulty maintaining its profit margins in 1991 because of the relatively small rate increase that the federal government has granted this year to HMOs that serve Medicare recipients. Currently, Medicare payments account for 60% of FHP’s revenue.

FHP’S PERFORMANCE

In the second quarter of fiscal 1991 ended Dec. 31, FHP International Corp. reported a 28% increase in net income and a 40% increase in revenue.

Figures are in thousands, except per-share data.

2nd Qtr 2nd Qtr 6 Months 6 Months 1991 1990 1991 1990 Revenue $312,227 $222,550 $606,049 $432,594 Net income $8,295 $6,482 $16,744 $13,265 Per share $.32 $.25 $.64 $.51

Source: FHP International Corp.