Aetna reports 16 percent jump in net income, 9 percent rise in revenue

Rising membership and cost-cutting helped boost profit at Aetna Inc. by 16 percent in the second quarter, the insurer announced Thursday.

The Hartford-based company reported profits of $451.3 million, or 85 cents per share, compared with earnings of $389.5 million, or 67 cents per share during the same period last year.

Revenue for the three months ended June 30 increased to $6.79 billion, up nearly 9 percent from $6.25 billion in the same quarter last year.

Per-share earnings beat the estimate of 80 cents by analysts polled by Thomson Financial.

Aetna said it expects full-year earnings per share of $3.40-$3.42 and third quarter per-share earnings of between 90 cents and 92 cents.

Shares fell 80 cents, or 1.6 percent, to close at $49.85.

The number of insured for Aetna's medical products was 15.76 million as of June 30, up from 15.4 million in the same period last year.

Sally Rosen, managing senior financial analyst at A.M. Best in Oldwick, N.J., cited the gain in membership for helping drive profitability at Aetna. The insurer made gains among commercial customers despite business consolidations, layoffs and other factors, she said.

"Commercial is a tough market to grow. It's very competitive," Rosen said.

Pharmacy membership also increased in the quarter, but dental membership dropped by 470,000, to 13.18 million from March 31 due to the loss of a customer with network access to dental providers.

Ronald Williams, chief executive, said Aetna has been successful in marketing, with 80 percent of customers buying two or more products.

"Earnings growth is the result of selling better solutions than competitors and customers buying more products," he said in an interview.

Costs are being contained with better use of technology, including increased electronic collection and payment of claims and better desk top data providing more customer information, Williams said.

Matthew Borsch, an analyst at Goldman Sachs, said Aetna's earnings report will likely calm investors who have watched UnitedHealth and WellPoint stock take a beating after recent quarterly results.

"While the apparent disparity is a bit perplexing, we think it is indicative of a 'soft landing' that trends are not pointing in the same direction for every company every quarter," he said in a research note.

In its core health care business, Aetna reported net income of $403.1 million in the quarter, a 37.5 percent increase from $293.2 million in the same quarter last year. The health care business provides medical, dental, pharmacy and behavioral health products and services.

Aetna reduced slightly the percentage of spending to pay for health care costs, reporting a total medical benefit ratio of 81.5 percent in the quarter, compared with 81.9 percent in the same quarter last year.

Williams said its agreement in the second quarter to pay $535 million to purchase Phoenix-based Schaller Anderson, which manages health care for Medicaid plans and administers employers' self-funded health plans, will diversify Aetna's products and improve its local market presence.

"This acquisition will position Aetna as a significant player in the Medicaid market and give us an additional avenue for profitable growth.