Foundation Health Posts Big Loss in 4th Quarter
Foundation Health Systems Inc. on Tuesday reported a hefty fourth-quarter loss from shedding unprofitable businesses, though it pointed to its impressive cash flow growth as a harbinger of more profitable times to come.
The nation’s fourth-largest publicly traded health maintenance organization said the loss totaled $103 million, or 85 cents a share. That included $185.9 million in pretax charges for asset impairments and $29.2 million for losses on those assets.
A year earlier, Woodland Hills-based Foundation posted a fourth-quarter loss of $88.6 million, or 73 cents a share.
Chief Executive Jay Gellert said in a statement that the company’s fourth-quarter earnings “approximated 21 cents” before the host of charges. That is the amount analysts had expected the company to earn, according to First Call Corp.
Foundation stock rose 94 cents to close at $10.56 on the New York Stock Exchange.
Foundation has been struggling since it was created in 1997 through the $1.3-billion merger of Foundation Health Corp. and Health Systems International Inc. as medical costs grew faster than forecast and it lost members to rival HMOs. The company last year moved to dig itself out of that mess by naming a group of new executives who sold unprofitable businesses and worked to improve the performance of its main health insurance units in California and the Northeast.
“This quarter was the last cleanup opportunity,” said Greg Crawford, a Fox-Pitt Kelton analyst. “Expectations will be for considerable earnings improvement in 1999.”
Foundation’s cash flow, however, totaled $345.9 million in the fourth quarter, compared with $112 million a year earlier. Improved cash flow was one key goal of a three-pronged restructuring plan launched last summer. Speeding up the sale of non-core assets and boosting growth in remaining operations were the other goals.
The company reported that quarterly revenue rose 19.6% to $2.26 billion from $1.89 billion a year earlier.
Foundation also said it would take an additional $16.8 million in charges in the first quarter of 1999 in connection with severance and other payments to shutter its Pueblo, Colo., service center.
Foundation also announced it would sell its Colorado health plan subsidiary, QualMed Plans of Colorado, to WellPoint Health Networks Inc. of Woodland Hills.
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Foundation Health Systems reported a loss in the latest quarter, but pointed to cash flow growth. Wall Street isn’t sure. Quarterly stock
price and latest:
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Tuesday: $10.56, up 94 cents
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Source: Bloomberg News
