Aetna posts lower 1Q profit, but beats view

Membership growth and increases in premiums pushed revenue up for Aetna Inc. in the first quarter, just days after two other health insurers turned in poorer than expected results and cut their outlooks for the rest of the year.

Aetna reported Thursday that its profit slipped, but revenue increased 16 percent, beating Wall Street expectations.

The Hartford-based insurer earned $431.6 million, or 85 cents per share, in the three months ended March 31 compared with year-ago earnings of $434.6 million, or 81 cents per share. Earnings per share rose as earnings slipped because it had fewer shares outstanding.

Excluding items, earnings were 92 cents per share in the latest quarter, matching Wall Street's expectations.

Revenue grew to $7.74 billion from $6.70 billion, as medical membership increased by 614,000, to 17.5 million. Analysts surveyed by Thomson Financial expected lower revenue of $7.71 billion.

Aetna's shares fell 83 cents, or 1.9 percent, to close at $42.26 Thursday.

Aetna reaffirmed its outlook for 2008 adjusted earnings per share of $4, and raised its forecast for medical membership growth by 50,000, to a range of 850,000 to 900,000 members.

In contrast, profits reported by UnitedHealth Tuesday fell short of analysts' expectations. It reported profit up by 7 percent, to $994 million, or 78 cents per share. That was 2 cents less than expected by analysts.

UnitedHealth's revenue also increased 7 percent, to $20.3 billion from $19.05 billion. But UnitedHealth cut its 2008 profit outlook by 40 cents per share to a range of $3.55 to $3.60, citing the slowing economy and worse-than-usual flu season.

Rising medical costs and pricing problems pushed first-quarter profit at Indianapolis-based WellPoint Inc. down 25 percent, missing Wall Street expectations. The health insurer cut its full-year outlook Wednesday for the second time in about a month.

Matthew Borsch of Goldman, Sachs & Co. said Aetna's results "contrast strongly with weakness at UnitedHealth and WellPoint."

"We attribute a large portion of this to the company's superior execution, particularly in the fee-based large employer segment," he wrote in an investor note.

John Rex of Bear Stearns said in an investor note that Aetna performed well relative to the industry.

"While perhaps not filled with 'upside' surprises, a clean and very much in line report, a welcome reaffirmation of stability given the broader sector pressures of the past month," he wrote.

And Dave Shove, an analyst at BMO Capital Markets in New York, said Aetna's business model does well in preparing for future medical costs incurred by customers.

"I think they are a bit better in underwriting. It's an all-encompassing thing, a deeper understanding of customers at almost the individual level," he said.

Aetna is continuously gathering and updating data about insurance claims that provide valuable information, Shove said.

"It's just a very deep, robust claims and pricing right in front of you," he said.

Falling interest rates are pinching Aetna, with net investment income falling to $243.2 million in the quarter, from $294.5 million in the same period last year. Guidance for the year includes Aetna's interest rate expectations for 2008, said Joseph M. Zubretsky, chief financial officer.

"We're sort of navigating through a lower interest rate environment," he said in an interview. "It's just a factor. We've got to deal with it."

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