(Reuters) - Health insurer Humana Inc (HUM.N) reported a drop in fourth-quarter profits on Monday and said it was experiencing the worst flu season in a decade that would cost $75 million for added healthcare services such as hospitalizations.
Its profits beat analyst expectations, however, and it gave a better-than-expected first quarter outlook. Shares rose $3.12, or 4.1 percent, to $78.47 in early trading.
The company said on Monday net income had fallen to $192 million, or $1.19 a share, from $199 million, or $1.20 per share, a year earlier.
Analysts on average had expected earnings of $1.06 per share, according to Thomson Reuters I/B/E/S.
Fourth-quarter revenue rose 6 percent to $9.56 billion from $9.06 billion, missing the analysts’ average estimate of $9.73 billion.
Humana said it expected first-quarter earnings of $1.75 to $1.85 per share, compared with analysts’ expectations of $1.53.
“It looks like they are starting the year stronger than expected,” Leerink Swann analyst Jason Gurda said, noting the above consensus outlook for the first quarter despite the company’s anticipated high 2013 flu costs. That was likely helping shares, he said.
Part of the fourth-quarter earnings beat was due to a decline in the company’s tax rate from the year-earlier quarter. The company also said an increase for members in some plans enabled it to be more cost efficient.
Costs associated with the flu peaked in the middle of January, Chief Financial Officer Jim Bloem said during a conference call. Humana said it spent about $25 million, or 10 cents per share, during the fourth quarter and it expects to spend another $50 million, or 20 cents per share.
Insurers’ finances can be hurt by the flu because of an increase in claims related to visits to doctors and hospitals. In some insurance plans, Humana is paid on a per-person rate rather than a per-visit basis, and so it feels a financial impact when use of medical services rises.
Other insurers have also reported higher costs related to the flu, which began earlier than usual this year, and will spend hundreds of millions total by the end of the season. [ID:nL1N0AU9DH] The number of positive flu tests dropped for the fourth week in a row, according to data released by the Centers for Disease Control on Friday.
Humana confirmed the outlook it gave in November for 2013 earnings of $7.60 to $7.80 per share, saying it expected to benefit from improved operating results and its Metropolitan Health Networks Inc acquisition.
The company forecast 2013 revenue of $41 billion to $41.5 billion, in line with Wall Street estimates.
Louisville, Kentucky-based Humana said the costs of providing benefits in its retail business had risen, but operating expenses for this group, combined with healthcare for employer groups, had fallen. Operating expenses for its military healthcare contract rose, the company said.
Humana, which has a large business providing Medicare and Medicaid healthcare, has been facing rising costs and downward pressure on payments from the U.S. government for medical services.
Other health insurers, including UnitedHealth Group Inc (UNH.N), WellPoint Inc WLP.N and Aetna Inc (AET.N), have also reported on difficult conditions in their fourth-quarter earnings. The industry is bracing for further change this year and next as state and U.S. government-run electronic health exchanges begin selling insurance directly to consumers and small businesses.
Humana said it did not expect a large number of its customers in its small business to move to exchanges. It expects to take part in about 10 different exchanges.
Reporting by Caroline Humer; editing by Lisa Von Ahn and Sofina Mirza-Reid