Humana profit rises 13 percent

NEW YORK (Reuters) - Health insurer Humana Inc (HUM.N) said on Monday that first-quarter profit rose nearly 13 percent, beating dramatically reduced expectations, helped by its commercial plans for employers and a lower-than-expected tax rate.

Humana shares rose nearly 2 percent as the company also nudged up its full-year profit outlook, due to nonoperational items including fewer shares outstanding and lower taxes.

The share climb amounted to a small rebound in the stock price, which is down about 50 percent since mid-January. Humana in March slashed its first-quarter forecast by about half on high costs for its Medicare prescription drug plans.

"Humana's first quarter doesn't make the case that things will be better next year, but it certainly argues the point that things aren't any worse than what the company told us in the negative March pre-announcement," Oppenheimer & Co analyst Carl McDonald said in a research note.

The report from Humana, one of the largest U.S. providers of Medicare plans for the elderly, follows mixed quarterly results from rivals. Industry shares have been hammered this year on profit warnings and fears of a downturn.

Humana's first-quarter net income rose to $80.2 million, or 47 cents per share, from $71.2 million, or 42 cents per share, a year earlier. Analysts expected 45 cents per share, according to Reuters Estimates.

Revenue rose 12 percent to $6.96 billion.

Pretax earnings for the commercial segment rose 35 percent to $127.2 million. Commercial membership stood at 3.46 million at the end of March, up 6 percent from a year earlier and generally unchanged from the end of 2007.

Humana expects to add about 90,000 to 120,000 commercial members in 2008, most of whom will come during the balance of the year.

The company has been enrolling a greater portion of its members through plans for individuals and small employers, which have better margins than those for larger businesses.

"Humana's commercial business performed above expectations," Wachovia analyst Matt Perry said in a research note.

But the Louisville, Kentucky-based company posted a pretax loss of $3.2 million in its government segment, primarily on expenses for its Medicare drug plans.

Membership in Humana's full-service Medicare Advantage plans was nearly 1.27 million at the end of the quarter, up 14 percent from a year earlier and 11 percent from year end.

It continues to expect to add 200,000 to 250,000 Medicare Advantage members in 2008.

Humana raised its 2008 earnings forecast to $4.10 to $4.35 per share. It had previously expected $4 to $4.25, and analysts were looking for $4.11.

It forecast second-quarter earnings of $1.15 to $1.20 per share. Analysts had expected $1.12.

Until this year, Humana had been a stock market star, with shares more than tripling from the end of 2003 to the end of last year. The company has capitalized on a federal expansion of Medicare.

Humana in March blamed its Medicare drug-plan issues on errors in designing the benefits. It maintained the problems were correctable and that its growth trajectory would resume in 2009.

Wachovia's Perry called the drug-plan problems "100 percent fixable for 2009."

Humana shares rose 76 cents, or 1.7 percent, to $45.64 in morning trading on the New York Stock Exchange. The shares have fallen 39 percent in 2008, underperforming a decline of some 32 percent for the Morgan Stanley Healthcare Payor index .HMO.

(Reporting by Lewis Krauskopf; Editing by Brian Moss and Dave Zimmerman)