Coventry Health Care Inc. (CVH) generated second-quarter 2011 operating earnings of $123.3 million or 83 cents per share, which exceeded the Zacks Consensus Estimate of 76 cents. The quarter’s results were, however, below operating earnings of $149.2 million or $1.01 per share in the prior-year quarter.
The year-over-year difference can be traced back to a favorable impact of 18 cents per share related to earnings from Medicare Advantage Private Fee-for-Service (MA-PFFS) product and an unfavorable impact of $1.18 per share due to a provider class action litigation in Louisiana that were excluded from the year-ago earnings.
The earnings per share for the reported quarter exclude the favorable impact of 3 cents from the Medicare Advantage Private Fee-for-Service (MA-PFFS) product and 68 cents from a definitive settlement agreement with a provider class action litigation in Louisiana.
Including the impact of the special items, Coventry reported net income of $224.5 million or $1.51 per share in the reported quarter, showing a gigantic increase from $1 million or 1 cent per share in the prior-year quarter.
Total operating revenues in the reported quarter climbed 6% year over year to $3.00 billion, falling behind the Zacks Consensus Estimate of $3.01 billion.
During the second quarter, managed care premiums increased to $2.74 billion from $2.57 billion in the prior-year quarter, while revenues from management services declined to $295.5 million from $297.6 million in the year-ago period.
Coventrywitnessed total operating expenses of $2.68 billion in the reported quarter, down from $2.86 billion the year-ago quarter. Medical costs, the major operating expense component, increased to $2.25 billion from $2.03 billion in the prior-year quarter.
Likewise, Coventry’s cost of sales and selling, general and administrative (SG&A) expenses also increased over the said period. However, depreciation and amortization (D&A) expenses declined marginally to $33.4 million from $33.99 million.
Health Plan Commercial Group Risk: The Health Plan Commercial Risk membership for the reported quarter was 1,648,000, an increase of 126,000 from the prior-year quarter. The Health Plan Commercial Group Risk Medical Risk Ratio (MLR) in the quarter came in at 81.1%.
Medicare Advantage Coordinated Care Plans (MA-CCP): Coventry reported MA-CCP membership of 219,000, showing an increase of 27,000 members from the year-ago quarter. The Medicare Advantage MLR came in at 82.9%.
Medicare Part D: Medicare Part D membership stood at 1,150,000 at the end of the reported quarter, staying almost flat year over year. The Medicare Part D MLR in the quarter came in at 88.8%, against 90.7% in the prior-year quarter.
Medicaid: The Medicaid membership at the end of the reported quarter stood at 467,000, which reflected an increase of 54,000 members from the year-ago quarter. The Medicaid MLR in the quarter came in at 86.9%.
Balance Sheet and Capital Structure
Coventry ended the quarter with approximately $1.65 billion of cash and cash equivalents.
The company exited the quarter with $1.58 billion in long-term debt, with debt to capital of 28.8%.
In addition, the company repurchased 1.5 million shares for $50.
As of June 30, 2011, Coventry had total assets of $8.88 billion and shareholders’ equity of $4.49 billion.
Outlook for 2011
Coventry expects to earn between $3.48 and $3.63 per share, including the impact of settlement adjustment of 68 cents.
Projections for risk revenue are $10.55 billion to $11 billion. Management services revenue is projected between $1.18 billion and $1.20 billion.
The company expects its consolidated revenue guidance to range between $11.73 billion and $12.20 billion. Coventry’s consolidated MLR is expected between 81.8% and 82.3% in fiscal 2011.
Coventryanticipates cost of sales in the range of $272.0 million to $278.0 million, with SG&A expenses reiterated in the range of $2.00 billion to $2.04 billion, D&A between $136.0 million and $140.0 million, and interest expense in the range of $98.0 million to $99.0 million in fiscal 2011.
Coventry’s other income is expected to range between $78.0 million and $82.0.
Shares outstanding at year end are expected to be 147.0 million to 149.0 million.
Competition
WellPoint Inc.(WLP), a competitor of Coventry, reported second quarter 2011 income from continuing operations of $701.6 million or $1.89 per share, surpassing the Zacks Consensus Estimate of $1.79 per share. Another rival, Unitedhealth Group Incorporated (UNH) generated operating earnings of $1.16 per share, beating the Zacks Consensus Estimate of 93 cents.
Coventrycarries a Zacks #3 Rank, which translates into a short-term Hold rating.
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