October 30, 2009 / 11:12 AM / 10 years ago

UPDATE 3-Coventry Health profit tops views; CFO to leave

* Q3 EPS ex-items of 66 cents vs 54-cent Wall St view

* Sees FY EPS of $2.01-$2.03, up from $1.85-$1.95

* CFO resigns, effective end of year

* Shares fall 1.4 pct (Adds CFO departure, analyst, company comments, updates stock activity)

By Lewis Krauskopf

NEW YORK, Oct 30 (Reuters) - Coventry Health Care Inc CVH.N posted lower third-quarter net income on Friday, hurt by a charge tied to a sale, but the results topped analysts’ forecasts as profit margins improved at its commercial health plans serving employers.

Coventry, which is recovering after posting disappointing results last year, also raised its full-year forecast.

But the company’s shares lost their gains after Coventry said on a conference call that Chief Financial Officer Shawn Guertin would leave at the end of the year. The stock fell 1.4 percent.

“Given some of the cost issues we’re seeing across the industry, people were more jumpy given unexpected events than would otherwise be the case,” Collins Stewart analyst Brian Wright said.

Chief Executive Officer Allen Wise said on the conference call that the mutual decision of Guertin’s departure came after the CFO, who has held the position for five years, told him 2008 had been difficult and took a toll on him and his family.

John Stelben, senior vice president for finance, will assume the job on an interim basis.

“While from a company standpoint, I believe ... that the company would be better off if Shawn remained in his position, I have to respect what is best for him and his family, and I understand his priorities,” Wise said on the call.

Third-quarter net income fell to $70.6 million, or 48 cents per share, from $85.5 million, or 58 cents per share, a year earlier.

Excluding charges from the sale of its First Health Services subsidiary, earnings of 66 cents were 12 cents above the average estimate of analysts, according to Thomson Reuters I/B/E/S.

Revenue rose 17.4 percent to $3.44 billion. Analysts looked for $3.48 billion.

Coventry follows larger rivals in posting better-than-expected third-quarter earnings. The industry’s shares remain pressured by the potential fallout of healthcare reform under debate in Congress.

Several companies have reported worrying cost trends stemming from the H1N1 flu and Cobra insurance for people who lost their jobs.

Sanford Bernstein analyst Ana Gupte said Coventry’s better-than-expected commercial medical cost results should somewhat alleviate investor concerns about such spikes “and have a positive read-across for the group.”

The results also show the “company continues to make progress toward its turnaround,” Gupte said in a research note.

In its commercial plans for employers, Coventry spent 82.1 percent of its premium revenue on medical costs, less than 82.3 percent a year earlier.

For all its plans, medical costs rose to 84.4 percent of premiums from 83.8 percent, but were less than the 85.6 percent expected by Wells Fargo analyst Matt Perry.

“The outperformance in the quarter was from better commercial margins — which is a good sign that their re-pricing continues to gain traction,” Perry said in a research note.

Coventry boosted its full-year earnings forecast, excluding items, to a range of $2.01 to $2.03 per share, from its prior outlook of $1.85 to $1.95.

Coventry shares were down 29 cents at $20.62 in morning trading on the New York Stock Exchange. (Reporting by Lewis Krauskopf; Editing by Lisa Von Ahn)

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