Aetna Posts a 94% Rise in Q4 Profits, but Still Misses Expectations

Andrew Klips  |

A big jump in sales and profits for Aetna Inc. (AET) was not enough to match analyst predictions for the fourth quarter and the Hartford, Connecticut-based company further disappointed with its guidance for 2014 on Thursday.

Coventry Acquisition Drives Jump in Revenue for AET

For the quarter, the U.S.’s third largest health insurer reported total revenue of $13.18 billion, up by 33 percent from $9.93 billion in the year prior quarter. Operating revenue, which doesn’t figure in things like capital gains, totaled $13.13 billion, versus $8.96 billion in last year’s quarter.

Net income surged 94 percent to $368.9 million, or $1.00 per share, compared to $190.1 million, or 56 cents per share, in the fourth quarter last year.  Operating earnings, which exclude restructuring expenses and other one-time items, improved to $1.34 per share from 94 cents per share in Q4 2012.

Wall Street was calling for operating earnings of $1.36 per share and operating revenue of $13.15 billion.

The surge in profits and sales were mostly tied to Aetna’s $8.7-billion acquisition of Coventry Health Care Inc. last May, which expanded the company’s receivables related to Medicare and Medicaid. As a new, bigger company, Aetna ended 2014 with a record 22.2 million members.

With the Coventry addition, expenses also rose at Aetna. For example, health care costs were up from $6.12 billion to $9.35 billion.  Selling expenses climbed to $365.3 million from $285 million. General and administrative costs rose from $1.64 billion in Q4 2012 to $2.14 billion.

“In 2013 Aetna completed the largest acquisition in our history, and delivered record annual operating revenues and operating earnings,” said Mark T. Bertolini, Aetna chairman, CEO and president, in a prepared statement. “Aetna’s solid fourth-quarter performance closes a great year for the company and is a continued testament to the strength of our diversified portfolio,” he added.

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Exchanges Driving Membership Growth

Aetna also said that it was gaining some traction on the new public insurance exchange at in January. The company now has received about 200,000 applications through, which has translated to 135,000 paid members through the end of January. Aetna is operating on the exchange in 17 of the 36 states that is offering insurance.

The website is the flagship product of President Obama’s healthcare reform initiative, called the Patient Protection and Affordable Care Act, but better known as Obamacare. The website launched at the first of October, but was widely criticized for its exorbitant amount of technical problems and really didn’t get running efficiently until last month.

Blue Cross and Blue Shield plan provider WellPoint (WLP) , the nation’s second largest health insurer, has reported receiving about 400,000 applications through the marketplace, with about 66 percent being government subsidy eligible. UnitedHealthCare Group (UNH) , the U.S.’s largest health insurer, is not very active on the exchange and has not reported on enrollment at this point.

New Laws, Regulations Come with New Members

The downside at this point of the exchange for insurers is that they are having to adjust to new taxes, fees and other changes related to healthcare reformation as well as insuring older patients and those with pre-existing conditions. This presents new challenges for 2014 and going forward.  Aetna’s Bertolini said that, although the new patients are only a small portion of the company’s overall business, he expects the company to initially lose money on those operations.

In today’s press, Aetna reaffirmed their guidance for 2014, forecasting a profit of at least $6.25 per share, which was shy of the $6.32 analysts expected.  For all of 2013, the company reported operating earnings of $5.85 per share.

Given its reports missing the street predictions, Aetna is struggling to participate in the broad market rally on Thursday. Shares were down near two-month lows, but have picked-up heading towards the closing bell to only be off by 0.2 percent at $68.16.

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