FHP International’s First-Quarter Earnings Down 30% : Profitability: Health maintenance organization blames drop on the economy and several other factors.
FHP International Corp., the health maintenance organization, said Tuesday that its first-quarter earnings fell 30%.
Earnings for the quarter ending Sept. 30 of $5.8 million, or 18 cents a share, contrasted with $8.4 million, or 30 cents a share, for the same period last year, the company said.
For the record:
12:00 a.m. Oct. 31, 1991 For the Record
Los Angeles Times Thursday October 31, 1991 Orange County Edition Business Part D Page 2 Column 6 Financial Desk 1 inches; 28 words Type of Material: Correction
FHP--FHP International Corp. reported first-quarter earnings of $5.8 million, down 30% from the year-earlier quarter. A summary in the Highlights section of Wednesday’s editions was incorrect.
FHP attributed the lower profits to several factors: the Southern California economy, increased competition for senior customers, curtailed sales to Medicare recipients and lower rate increases for Medicare patients.
“The results are a little disappointing, but they’re about what the company said they would be,” said Peter Costa, an analyst with the Boston investment bank Tucker, Anthony.
FHP’s revenue rose 24% to $364.2 million. The sales gain was due to increased enrollment of members, the company said.
When the company revised its first-quarter earnings estimates downward on Oct. 17, stock fell 28% to $12.75 a share. It closed unchanged Tuesday at $11.50 in over-the-counter trading.
Costa said FHP’s troubles won’t go away anytime soon. The Southern California economy is not expected to rebound soon, and FHP’s outside costs for hospital, physician and skilled nursing services will remain high relative to Medicare reimbursements for the rest of the year.
FHP’s business is affected by the economy because when its commercial customers lay off workers, that means fewer people to sign up for company health plans.
FHP said Tuesday that its total membership rose 14% to 643,000, as of Sept. 30. The increase was mostly in Arizona, said company spokeswoman Anna Marie Dunlap, noting that Southern California enrollment was flat for the year. FHP’s Southland enrollment has grown an average of 13% annually in past years, she said.
Overall, the commercial plan grew 10% in the past year to 423,000 members, the company said. Senior Plan enrollment increased by 22% to 220,000 members for the year. But a government investigation of the Senior Plan, which began in July, has reduced enrollment since then.
Two investor lawsuits, which claim the company misled investors about its prospects, were filed earlier this month. The suits claim the company overestimated the potential of Senior Plan sales when it offered 4.5 million shares of company stock for sale in May.
A similar third suit was filed Thursday in Superior Court in Santa Ana, the company said.
Westcott W. Price III, FHP’s president and chief executive, said he sees two favorable signs for the company in the near future.
He said the company will receive a 5% increase in Senior Plan premiums from the government beginning Jan. 1, versus the 1.6% increase that went into effect in January.
Also, the company incurred costs in July and August when it changed its primary contract hospital in Utah, Price said.
Any improvement in second-quarter earnings will be slight, he said. “Our analysis currently indicates that we may not generate major gains in the current quarter,” Price said.
