Aetna Sees No Earnings Boost From CVS Caremark Pharmacy Deal Until 2012
July 28 (Bloomberg) -- Ronald Williams, chief executive officer of Aetna Inc., discusses the company’s second-quarter profit, increased 2010 forecast, costs and the impact of the economy on the health-care insurance industry. Aetna, the third-largest U.S. health insurer, increased its 2010 profit forecast a second time after a milder-than-expected flu season and improved coordination with doctors helped reduce medical costs. Williams talks with Margaret Brennan on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)
Aetna Inc., the third-largest U.S. health insurer, doesn’t expect its new pharmacy-benefit contract with CVS Caremark Corp. to increase earnings until 2012, said Chief Financial Officer Joseph Zubretsky.
Under the agreement, announced yesterday, Woonsocket, Rhode Island-based CVS will administer $9.5 billion in annual drug spending. Aetna will retain ownership of its own pharmacy- benefits unit, as well as decisions over what drugs to cover, while CVS will handle distribution of the medicines and other services.
Aetna expects the deal to result in drug-cost savings for customers. It will also lead to lower administrative expenses, bring in new customers, and result in a higher pharmacy penetration for the company, Zubretsky said in a conference call with investors today. While these gains will be offset next year by integration costs, the company expects to see an earnings benefit of 30 cents a share in 2012, he said.
“Some investors may be disappointed that Aetna elected an outsourcing services contract over an outright sale” of its pharmacy unit, given the precedent of WellPoint Inc.’s $4.7 billion sale of its pharmacy-benefit management business last year, said Matthew Borsch, an analyst at Goldman Sachs & Co., in a note to investors today.
Aetna fell 81 cents, or 2.9 percent, to $27.55 at 4 p.m. in New York Stock Exchange composite trading. The company raised its full-year profit forecast on April 29, citing lower-than- expected health spending.
Guidance Raised
Aetna increased its 2010 profit forecast yesterday after a milder-than-expected flu season and improved coordination with doctors helped reduce medical costs.
Operating earnings may reach $3.05 to $3.15 a share, Hartford, Connecticut-based Aetna said. That’s more than the $2.75 to $2.85 predicted in April. Aetna raised its guidance after lower-than-projected costs added 30 cents a share to second-quarter earnings.
Second-quarter net income rose 42 percent to $491 million. Adjusted for the lower costs, earnings of 75 cents a share topped the 73 cent average of 16 analyst estimates compiled by Bloomberg.
Those gains may be tempered in the second half by the costs of complying with the U.S. health overhaul enacted in March and a seasonal pattern of higher medical costs, Zubretsky said today. The company will have transaction expenses of $50 to $60 million in the second half, he said.
“Aetna is clearly concerned about second half earnings,” said Carl McDonald, an analyst at Citigroup Global Markets Inc., in a note to clients today.
The number of people enrolled in Aetna’s medical plans in the second quarter fell 2.4 percent to 18.6 million from a year earlier. The company expects enrollment to decrease by 220,000 members over the rest of the year, mostly due to “economic attrition,” Zubretsky said today.
Ronald Williams, Aetna’s Chief Executive Officer, told CNBC today that he is “not yet seeing” companies hiring.
To contact the reporter on this story: Alex Nussbaum in New York anussbaum1@bloomberg.net.
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