By Lisa Beilfuss
Humana Inc. on Monday cut its earnings outlook because of
higher-than-expected medical costs as the company discussed its
previously announced $34.1 billion tie-up with Aetna Inc.
Humana Chief Executive Bruce Broussard said the company is
performing in a "reasonable fashion," but that hospital admissions
in its Medicare Advantage business "have not come down as quickly"
as it projected.
As a result, the insurer predicted earnings of $1.60 to $1.65 a
share for the quarter ended in June, short of the $2.36 anticipated
by analysts polled by Thomson Reuters. For the year, Humana sees
per-share earnings excluding certain costs of $7.75, down sharply
from its previous estimate of $8.50 to $9.
The reduced outlook comes as Humana recently agreed to be bought
by rival Aetna for about $230 a share in cash and stock. On a
conference call Monday, Aetna Chief Financial Officer Shawn Guertin
said Humana's updated outlook was "consistent with the information
we examined during our diligence," adding the companies did "months
of thoughtful analysis."
Humana also said it had revised its 2016 bids to reflect the
higher costs and was confident in its pricing plans. Aetna noted
that it had reached the same conclusion after hiring an independent
company to review the bids.
According to analysts at Susquehanna International Group, the
guidance cut "is not particularly surprising" after Humana in April
warned that it saw signs of an uptick in hospital admissions at the
end of the first quarter.
Anna Wilde Mathews contributed to this article
Mr. Broussard at the time cited "respiratory issues" and said
the admissions may represent "a longer extension of the flu,"
noting then that the increase appeared to be "an isolated
incident."
Still, Humana's lower earnings forecast adds to the concerns
surrounding the deal. Analysts have questioned the deal's high
price tag, how regulators may react to the deal, and whether Aetna
itself may be a takeover target.
Those concerns are contributing to the roughly 13% spread
between the deal's offer price and where Humana is trading. In
early afternoon trading, Aetna shares had fallen 7.4% to $116.24.
Based on the deal's terms, that price would value Humana at about
$222.35. Instead, Humana shares were trading at $191.25, up 2% on
the day but still more than $30 below the offer price.
Anna Wilde Mathews contributed to this article.
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com
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