Cigna Beats Q1 Earnings on Rev Growth, Guides Up

Cigna Corp.’s (CI) first-quarter 2014 net operating earnings came in at $1.83 per share, handily beating the Zacks Consensus Estimate of $1.53. Earnings were also up 6.4% year over year. Cigna’s better-than-expected earnings came from strong contribution across all its business segments.

Including one-time items, net income came in at $1.92 per share, compared with just 20 cents per share in the year-ago quarter, which had suffered on account of special charges.

Cigna’s consolidated revenues came in at $8.5 billion, up 3.8% year over year and also higher than the Zacks Consensus Estimate of $8.4 billion. The improvement in revenues resulted from a 3% increase in premiums and fees in Global Health Care, 13% in Global Supplemental Benefits and 7% in Group Disability and Life.

Quarterly Review by Segment

Premiums and fees from Cigna's Global Health Care segment increased 2.9% year over year to $6.0 billion, owing to customer growth, specialty contributions and renewal rate increases, partially offset by revenue loss from discontinuation of Limited Benefits business, funding mix shift in the Commercial business as well as rate pressure in Medicare Advantage business.

Operating earnings increased 2.8% to $439 million led by effective medical cost management in both the Commercial Employer and Medicare Advantage businesses.

Premiums and fees from the Global Supplemental Benefits segment climbed 13% year over year to $680 million, driven by higher sales in multiple markets.

Operating income decreased 3.6% year over year to $53.0 million led by claim pressure in South Korea.

Premiums and fees from Cigna's Global Disability and Life segment climbed 7.0% year over year to $916 million, due to growth in both disability and life businesses. Operating earnings increased 37.0% to $67 million, due to business growth and lower operating expenses.

Financial Update

Cigna ended the quarter with cash and short term investments of approximately $475 million compared with $760 million as on Dec 31, 2013.

Shareholders’ equity was $10.6 billion as of Mar 31, 2014, unchanged from the 2013-end level.

2014 Guidance

Following a solid first quarter earnings performance, Cigna pulled up its earnings expectation for 2014. The company now expects earnings in the range of $7.05 to $7.35, higher than its earlier guidance of $6.80 to $7.20 per share. Consolidated earning from operations is expected in the range of $1.93 billion to $2.0 billion compared with $1.90 billion to $2.0 billion as projected earlier.

Segment-wise operating income from Global Health Care is projected between $1.605 billion and $1.635 billion compared with $1.575 to $1.635 billion previously anticipated.

Global Supplemental Benefits earnings expectation remained unchanged at $195 million and $215 million, while the same for Group Disability and Life was also retained in the band of $305 to $325 million.

Global medical customer growth is estimated at 1% to 2%.

Our Take

Despite being faced with tough operating industry conditions, Cigna delivered impressive results. Results for the quarter reflected solid revenue growth, disciplined expense management and continued effective medical cost management. The company’s niche market position and a diversified business profile with a strong balance sheet will help it to bring forth strong results further despite the Health Care law creating new challenges for health insurers.

Other Stocks

Cigna carries a Zacks Rank #3 (Hold). Other players like UnitedHealth Group Inc. (UNH), Aetna Inc. (AET) and WellPoint Inc. (WLP) all reported their first-quarter earnings ahead of the Zacks Consensus Estimate.