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Aetna beats 3Q forecast
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November 1, 2000: 11:47 a.m. ET
But net profit falls 14% as insurer's results hurt by rising medical costs
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NEW YORK (CNNfn) - Aetna Inc. posted a 14 percent drop in third-quarter operating profit Wednesday, dragged down by lower earnings at its managed care unit. Still, the results beat Wall Street's forecasts.
Shares in the Hartford, Conn.-based company, the biggest U.S. health insurer, jumped 3 percent in morning trading, gaining $1.94 to $57.81. The struggling company, which has struggled to make its core health business
more profitable since it bought rival U.S. Healthcare in 1996, is selling its financial services and international units to Dutch financial services firm ING Groep NV for $7.7 billion in cash and debt.
Aetna (AET: Research, Estimates) reported that third-quarter profit fell to $151.1 million, or $1.10 per diluted share, excluding special items, down from $184.1 million, or $1.21 per share, in the 1999 third quarter. Revenue rose 15 percent to $8.13 billion. Net income including capital gains totaled $177.4 million, or $1.24 per share.
Analysts polled by earnings tracker First Call had forecast profit of 90 cents per share for the latest period.
But third-quarter operating earnings plunged 84 percent to $77 million at the company's U.S. Healthcare division, reflecting significantly higher medical costs. Aetna said medical costs rose 10 percent over last year, pushing the company's medical loss ratio – reflecting medical costs as a percentage of premiums -- to 87.4 percent, from 83.9 percent in the 1999 third quarter.
The medical loss ratio at the Prudential HealthCare commercial HMO business worsened to 93.9 percent, from 87.2 percent in the year-ago period. The company said it is trying to make the unit more profitable by raising premiums and through other methods.
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"With the ING transaction on track for a December closing, we are focusing our efforts on improving our health-care business ... "
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William Donaldson
CEO
Aetna |
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Chairman and Chief Executive Officer William Donaldson said Aetna plans "aggressive action to reduce our expense base further for 2001, in light of anticipated product or market exits, continued membership attrition in Prudential HealthCare, and our smaller size as a stand-alone health-care company."
"With the ING transaction on track for a December closing, we are focusing our efforts on improving our health-care business, which was roughly level with last quarter," Donaldson said.
Aetna said it plans to take "significant" fourth-quarter charges related to the planned ING sale and efforts to boost the profitability of its health-care business.
The company expects to record after-tax charges of $200 million to $250 million related to the ING sale, Chief Financial Officer Alan Weber said in a conference call with analysts. After shedding its non-health business, Aetna intends to spin off its health-care operations to shareholders as a company that will retain the Aetna name. 
-- from staff and wire reports
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Aetna
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