UPDATE 5-Humana profit up, helped by Medicare--shares rise
* Q2 EPS $1.67 vs $1.64 Street estimate
* Files protest over defense contract
* Still sees FY EPS of $6.10-$6.20
* Shares rise 4.1 percent (Adds CEO comments)
NEW YORK, Aug 3 (Reuters) - Health insurer Humana Inc (HUM.N) posted a higher-than-expected quarterly profit on Monday as an improved performance in its Medicare plans for the elderly offset a decline in earnings from its business serving employers.
The company also backed its 2009 profit forecast and said it would try to cut $200 million in administrative spending for 2010. Its shares rose more than 4 percent.
Humana shares have underperformed rivals this year, amid concerns that the large provider of Medicare plans would be hit hard by U.S. government efforts to rein in costs from the healthcare program for the elderly.
Net income for the second quarter rose 34 percent to $281.8 million, or $1.67 per share, from $209.9 million, or $1.24 per share, a year earlier.
Analysts on average had expected $1.64 per share, according to Reuters Estimates.
Revenue rose 7 percent to $7.90 billion. Analysts had expected $7.75 billion.
"It was a strong quarter," said Ana Gupte, an analyst with Sanford Bernstein. "They had a revenue beat; they had an earnings beat."
Membership in the company's Medicare Advantage plans stood at nearly 1.5 million, up 12 percent from a year earlier and 4 percent from the end of last year.
Despite the company's success in Medicare, Chief Executive Officer Michael McCallister told analysts on a conference call that the insurer wanted to become more diversified.
In an interview, McCallister said the company has made some small and mid-sized moves to diversify into areas such as dental, vision and behavioral health benefits.
"I don't have anything on my radar screen that I would be willing to talk about that would be some sort of a big bang diversification play," the CEO told Reuters. "But those things are out there, and they're always on the radar screen."
The company spent 83.3 percent of its premiums on medical costs, compared with 85 percent a year earlier, when it was plagued by higher prescription drug costs in its Medicare plans.
Earnings in Humana's commercial segment fell 53 percent to $35.3 million, hurt by lower investment income. Commercial membership fell 3 percent to 3.45 million.
Louisville, Kentucky-based Humana cited higher-than-expected medical costs in the commercial business stemming from the weak economy.
Humana expects a decline of 175,000 to 195,000 commercial members by year-end, steeper than the 150,000 to 175,000 it had forecast in April.
Health insurers have seen their employer-based enrollment pressured by layoffs stemming from the weak economy.
"Performance in the government segment was strong yet again, while the much-smaller commercial segment showed slight weakness from the recession," Wells Fargo analyst Matt Perry said in a research note.
The company continues to expect full-year earnings of $6.10 per share to $6.20 per share, excluding special items. Analysts expect $6.09.
Humana said it had filed a protest against its loss last month of a U.S. Department of Defense health program contract.
Humana shares were up $1.33, or 4.1 percent, at $34.18 in afternoon trading on the New York Stock Exchange. Through Friday, they had fallen some 12 percent this year, compared with a nearly 13 percent rise for the S&P Managed Health Care index .GSPHMO of large health insurers. (Reporting by Lewis Krauskopf; Editing by Gerald E. McCormick and Gunna Dickson)
