Aetna Third-Quarter Profit Beats Forecasts; Shares Rise
Aetna Inc., the No. 1 U.S. health insurer, said Wednesday that third-quarter profit fell 14% because of higher medical costs, but its shares rose because the results were better than expected.
Aetna also said it expected its new stand-alone health business to post improved results next year, helping send its shares up $4.94, or 8.5%, to close at $62.75 on the New York Stock Exchange.
“What I am confident in saying at this point is that we will be profitable in 2001, and that performance is projected to improve over the level experienced in the second half of 2000,” John Rowe, president and chief executive of Aetna U.S. Healthcare, told analysts. He did not give specific projections.
Aetna said its third-quarter operating earnings fell to $158.1 million, or $1.10 a share, from $184.1 million, or $1.21, in the year-ago quarter. Revenue grew 15% to $8.1 billion.
The earnings beat analysts’ consensus forecasts by 20 cents, according to First Call/Thomson Financial.
Operating profit in the health- care segment--which Aetna plans to spin off to investors after selling its financial and international businesses to Dutch banking giant ING--dropped 41% to $77 million.
Aetna has been struggling to make its health business more profitable since it bought rival U.S. Healthcare in 1996.
Operating profit increased slightly in the financial services and international segments and were essentially steady in the pension segments.
Aetna said the disparity between medical costs and revenue decreased in its Aetna U.S. Healthcare business but worsened in its Prudential HealthCare operations.
“While we are disappointed with these results, we have identified a subset of geographic markets and large accounts that represent the bulk of the worsening experience and we are taking a number of corrective actions,” Aetna Chairman William H. Donaldson said.
Those steps include raising premiums, leaving roughly half the Medicare markets Aetna now serves and eliminating or selling products that are not meeting profit targets. The company is also continuing a cost-cutting program.
Hartford, Conn.-based Aetna also said it expects to take a fourth-quarter charge of up to $250 million related to the ING sale. It also may take other “significant” charges in the quarter for severance benefits and for exiting some markets.
At a Glance
Other earnings, excluding one-time gains or charges unless noted, include:
* Read-Rite Corp. said losses narrowed much more than expected in its fiscal fourth quarter to $16.1 million, or 25 cents a share, as revenue jumped 39% to $146 million. The company said increased efficiencies, lower costs and higher average prices helped it beat analysts’ forecasts of a 39-cent loss. The maker of computer disk drive recording heads had posted a loss of $80 million, or $1.61 a share, in the year-earlier period.
* Rockwell International Corp. said earnings declined 4.6% in its fiscal fourth quarter to $145 million, or 78 cents a share, hurt by continued underperformance in its automation segment. The company said, however, that increased demand for its automation equipment in the last two months of the quarter will help push up profit in the next quarter, surpassing its earlier forecast of 65 cents. A change in Rockwell’s accounting method shaved about a penny off the latest results. Analysts had expected earnings of 79 cents, revised down from 87 cents after Rockwell warned of profit weakness. Revenue edged down 1.6% to $1.89 billion.
* Tommy Hilfiger Corp. said profit dropped 41% in its fiscal second quarter to $44.9 million, or 49 cents a share, as sales fell 5% to $533 million. The results beat analysts’ expectations of 46 cents, however, and the apparel company said earnings in the following two quarters will also exceed Wall Street’s current forecasts.
