Health insurer Aetna's stock tumbles after earnings report misses expectations

Shares of Aetna Inc. sank more than 8 per cent Thursday after the health insurer reported a first quarter performance that missed Wall Street expectations, and it failed to raise its 2012 earnings forecast.

The third-largest U.S. commercial health insurer said earnings fell 13 per cent and reaffirmed that it expects 2012 adjusted earnings, which exclude capital gains or losses, of about US$5 per share. That falls about 15 cents below analysts’ expectations.

On the news, Aetna’s stock fell $4.03, to $45.33, while the Standard and Poor’s 500 index rose slightly.

Chairman and CEO Mark Bertolini told analysts in a Thursday morning conference call he thought it was “prudent” to maintain their earnings outlook as they continue to watch trends develop in the early part of the year.

Lower-than-expected health care use has helped insurers in the past several quarters, and it factored into the 73 per cent earnings gain Aetna reported in February for last year’s fourth quarter. But Aetna and other insurers have said they expect use to return to more normal levels this year, which means they pay more claims, as consumers who were pinched during the recession start to feel more comfortable about their finances.

Even so, Aetna’s two largest competitors, WellPoint Inc. and UnitedHealth Group Inc., both reported first-quarter results that beat Wall Street expectations and raised their annual forecasts. In a note to investors, Bernstein research analyst Ana Gupte wrote that investors had high expectations that Aetna would also post results that topped expectations, and that it would raise its forecast.

Instead, Aetna said its first-quarter profit fell as expenses rose and the health insurer faced a tough comparison to year-ago earnings that included a one-time gain of $112 million after taxes.

In the quarter, Aetna’s net income fell to $511 million, or $1.43 per share. That’s down from $586 million, or $1.50 per share, a year ago. Revenue excluding capital gains climbed 6 per cent to $8.86 billion, above the $8.61 billion analysts polled by FactSet were expecting.

Adjusted earnings, which exclude items like capital gains, were $1.34 per share in the latest quarter. Analysts surveyed by FactSet expected, on average, adjusted earnings of $1.40 per share.

Last year’s results included a gain because claims left over from previous quarters came in below expectations. That meant the company, which sells health, dental group life and disability insurance, could free up money it had held in reserve to pay those claims. There was no significant gain like that in this year’s quarter.

WellPoint also did not report a similar gain when it released first-quarter results Wednesday. But UnitedHealth said earlier this month it had a $530 million gain in its first quarter due to what is known as a favourable reserve development.

The amount Aetna paid in medical claims, its largest expense, climbed more than 9 per cent to $5.86 billion in the first quarter. An Aetna spokeswoman said the big jump was partially due to the relatively low total from last year’s quarter.

The insurer’s medical enrolment, which includes commercial health insurance and people covered by Medicare and Medicaid, fell 3 per cent to 17.9 million in the quarter compared to the end of last year.

Bertolini said in a statement that company officials are confident in their ability to raise that total this year to 18.2 million members, which would represent a slight drop from the end of last year. Some of that gain will come as Aetna expands its Medicaid business in Ohio and Missouri.