Molina Healthcare Inc. MOH reported third-quarter 2017 adjusted earnings of $1.13 per share, which surpassed the Zacks Consensus Estimate of 23 cents. The bottom line also grew 33% from the year-ago quarter.
Including restructuring cost of $1.39 per share, non-cash goodwill impairment losses of $1.77 per share and change in Marketplace premium deficiency reserve for 2017 service dates of 33 cents per share, net loss came in at $1.70 per share. This compares unfavorably with net income of 76 cents in the prior-year quarter.
Operational Update
In the third quarter, total revenues of $5 billion beat the Zacks Consensus Estimate by 1.7%. The top line also jumped 10.7% year over year, primarily due to an increase in premium revenues and investment income.
For the quarter, total operating expenses rose 15% year over year to $5.1 billion. This was due to higher medical care costs, increased cost of service revenues, rise in general and administrative expenses, higher restructuring costs and impairment losses.
For the quarter, medical care cost increased 12% year over year to $4.2 billion.
Continuously rising debt burden resulted in Molina Healthcare’s interest expenses increasing 23% year over year to $32 million.
Molina Healthcare Inc Price, Consensus and EPS Surprise
Financial Update
As of Sep 30, 2017, Molina Healthcare’s cash and cash equivalents increased 39% from year-end 2016 to $3.9 billion.
Total assets grew 20% from the end of 2016 to $8.9 billion.
The company’s shareholder equity declined 13% from year-end 2016 to $1.4 billion.
Net cash used in operating activities totaled $957 million for the first nine months, up 51% from $633 million used in the year-ago period.
Restructuring and Profit Improvement Plan
Due to the Molina Healthcare’s poor operating performance, it intends to implement a comprehensive restructuring and profitability improvement plan. Under the plan, the company would streamline its organizational structure to improve efficiency as well as the speed and quality of decision-making.
The company would re-design core operating processes, remediate high cost provider contracts and build high quality, cost-effective networks. Molina Healthcare will also restructure its existing direct delivery operations and review its vendor base.
The company expects the restructuring plan to reduce annualized run-rate expenses by approximately $300 million to $400 million upon its completion in late 2018. The company has already achieved $200 million of these run-rate reductions on an annualized basis, which will be effective Jan 1, 2018. Its third-quarter results include nearly $10 million of these reductions.
Molina Healthcare also estimates total pre-tax costs associated with the restructuring plan to be approximately $70-$90 million for the fourth quarter of 2017, with an additional $20 million to $40 million to be incurred in 2018.
The company expects a reduction of $200 million to annualized run-rate expenses resulting from staff reductions expected to be achieved by the end of 2017 and in time for full realization in 2018.
Marketplace Plan 2018
Molina Healthcare continues to monitor the current political and programmatic developments pertaining to the ACA Marketplace.
The company will exit the Utah and Wisconsin ACA Marketplaces on Dec 31, 2017.
It is increasing 2018 premiums by 55% to consider the absence of cost sharing reduction subsidies and other risks related to ACA Marketplace uncertainties.
It has reduced the scope of its 2018 participation in Washington Marketplace.
Zacks Rank
Molina Healthcare currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Insurers
Among the other firms in the medical sector that have reported third-quarter earnings so far, the bottom lines of Anthem Inc. ANTM, Aetna Inc. AET and UnitedHealth Group Inc. UNH beat their respective Zacks Consensus Estimate.
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