Cigna Corp. (CI) reported second-quarter 2014 net operating earnings of $1.96 per share, beating the Zacks Consensus Estimate of $1.85. Earnings were also up 10.1% year over year. Cigna’s better-than-expected earnings came from premium growth across all its business segments.
Including one-time items, net income came in at $2.12 per share, up 20.5% year over year.
Cigna’s consolidated revenue came in at $8.7 billion, up 9% year over year and above the Zacks Consensus Estimate of $8.2 billion. The improvement in revenues came from an increase in premiums and fees across all the segments.
Quarterly Review by Segment
Premiums and fees from the Global Health Care segment increased 7.6% year over year to $6.1 billion, owing to customer growth, strong performance in Commercial business, partially offset by revenue loss from discontinuation of Limited Benefits business, as well as rate pressure in Medicare Advantage business.
Operating earnings were $402 million compared with $403 million in the year-ago quarter.
Premiums and fees from the Global Supplemental Benefits segment climbed 17.8% year over year to $722 million, driven by customer growth, increased sales of higher premium products, and favorable foreign currency movements.
Operating income increased 24.5% year over year to $61 million led by the positive impact of strong customer retention, business growth and cost saving from operating expense management.
Premiums and fees from Cigna's Global Disability and Life segment climbed 5.2% year over year to $890 million, due to growth in both disability and life businesses. Operating earnings increased 5.8% to $110 million attributable to strong operational performance in the disability business and favorable reserve.
Financial Update
Cigna ended the quarter with cash and short-term investments of approximately $325 million compared with $760 million as of Dec 31, 2013.
Shareholders’ equity increased to $10.9 billion as of Jun 30, 2014, up 11.9% year over year.
Cigna's Book value per share increased 20% year over year to $41.32 as of Jun 30, 2014.
Share Buyback Update
During the quarter, Cigna repurchased approximately 13.5 million shares for approximately $1.15 billion.
2014 Guidance
Following a solid second-quarter earnings performance, Cigna pulled up its earnings expectation for 2014 from $7.05–$7.35 per share. The lower range of consolidated earnings from operations was pulled up to the range of $1.94 billion to $2 billion from $1.93 billion to $2 billion.
Segment-wise, operating income from Global Health Care was reaffirmed at $1.605 billion to $1.635 billion.
Earnings expectation for Global Supplemental Benefits was raised to $205 million to $220 million from the prior expectation of $195 million to $215 million. The same for Group Disability and Life was upped to $315 million to $330 million from the earlier guidance of $305 million to $325 million.
Global medical customer growth is estimated at 1% to 2%.
Our Take
Despite tough operating industry conditions, Cigna delivered impressive results. The health insurer has raised its earnings outlook for the third time this year. Going forward, we expect the company to continue posting favorable results from 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 generate strong results despite the Health Care law posing new challenges.
Cigna carries a Zacks Rank #3 (Hold).
Other Stocks
Among other health insurers, UnitedHealth Group Inc. (UNH), Assurant Inc. (AIZ) and Centene Corp. (CNC) surpassed the respective Zacks Consensus Estimate in their latest earnings releases.
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