Health Profit Disappoints, 500 Jobs Cut

	Tweet

Insurer Health Net Inc.  on Tuesday said quarterly profit fell by nearly 80 percent, sending its shares sharply lower, and said it will cut 500 jobs in an effort to turn itself around.

The Los Angeles-based health insurer also forecast full-year earnings below Wall Street’s and its own prior estimates, as it underestimated the cost of hospital claims.

The dismal results reflect a worsening of the company’s initial struggles gauging hospital costs in New Jersey. The company discovered the problem is prevalent nationally.

Analysts said even the revised, lowered earnings projections given on Tuesday may prove too optimistic.

“We have little confidence in these new projections,” Lehman Brothers analyst Josh Raskin wrote in an investor note, echoing the sentiment of other analysts.

Health Net said it earned $15 million, or 13 cents per share, in the first quarter, compared with $72 million, or 60 cents per share, in the year-earlier period.

That fell far short of the company’s forecast given in March of between 51 cents and 55 cents per share. Analysts polled by Reuters Research, a unit of Reuters Group Plc., on average had expected 52 cents per share.

“When migrating from one system to another, that increases the likelihood of mispricing,” said Doug Meyer, a Fitch Ratings analyst. “There are a lot of moving parts to this business.”

JOB CUTS

Health Net said it would cut 500 jobs and take a $15 million charge in the second quarter for severance as part of its efforts to return to financial health.

Jay Gellert, chief executive of the HMO, told investors on a conference call the company will cut the jobs, representing more than 5 percent of its work force, to drive down administrative costs. He told analysts he is aware that the company needs to win back the confidence of investors.

Analysts were split on whether Health Net’s woes were company-specific or a reflection of industry problems.

HMOs were a refuge for investors during the last market downturn, posting double-digit profit growth and surging stock prices.

Now, some believe premium pricing has hit its peak and a retreat is imminent, which will result in squeezed margins.

“We see Health Net results as a signal that a downturn in the industry underwriting cycle is finally at hand,” Matthew Borsch, a Goldman Sachs analyst, told investors in a note.

Borsch cited First Health Group and Humana Inc. as examples of other companies with recent pricing woes. Both companies warned of increasing price competition in first-quarter conference calls.

Health Net said it is boosting premiums for the rest of the year to offset the expected earnings shortfall.

Health Net said it expects 2004 earnings of $2.15 to $2.50 per share, compared with an average analyst estimate of $2.83 per share. For the second quarter, it sees earnings of 45 cents to 55 cents per share, excluding 8 cents in charges, compared with an average estimate of 65 cents per share.

In February, Health Net said it would earn between $2.92 and $3.07 per share for 2004.

Revenue rose to $2.92 billion, up from $2.72 billion a year earlier.

Health Net shares ended down $1.78 or nearly 7 percent at $23.72 on the New York Stock Exchange on Tuesday. Earlier in the day, the shares sank to $22.80, their lowest level since October 2002.

RELATED STORIES:
USC Expert on Medical Marijuana Available   Traveler’s alert: Business travel linked to obesity and poor health   Obesity remains a problem for some county students   Chinese smoking deaths seen doubling in 10 years   Fighting America’s “Other Drug Problem”   Experts advise elderly to continue exercising   Women and children gang raped in Congo’s Ituri: MSF   Markets, politicians react coolly to Chirac tax   Officials argue over sex in prisons   Health stories by experts more credible than blogs   Ancient body clock keeps all life on time: studies   Top Six Summer Dangers: ER Doctor Offers Tips for Keeping Kids Safe

Comments

[ + Post Your Own ]

Now you're in the public comment zone. What follows is not Armenian Medical Network's stuff; it comes from other people and we don't vouch for it. A reminder: By using this Web site you agree to accept our Terms of Service. Click here to read the Rules of Engagement.

There are no comments for this entry yet. [ + Comment here + ]