Humana (HUM) Trims FY15 EPS Outlook Following Aetna Deal

On July 3, 2015, Humana Inc. (NYSE: HUM) and Aetna Inc. (NYSE: AET) announced that they had entered into a definitive agreement under which Aetna will acquire all outstanding Humana shares for a combination of cash and stock valued at $37 billion or approximately $230 per Humana share based on the closing price of Aetna common shares on July 2, 2015 (the “Transaction”). Humana and Aetna will host a conference call at 8:30 a.m. ET on Monday, July 6, 2015, to discuss the Transaction. In advance of the call Humana has updated the Company’s financial results for the second quarter of 2015 and earnings guidance for full year 2015 in a presentation posted to the Company’s Investor Relations website. That presentation includes the following items of note:

· The Company now projects full-year 2015 adjusted earnings per share (“EPS”) of approximately $7.75, and second quarter 2015 adjusted EPS of $1.60 to $1.65(1). (The Street sees FY15 EPS of $8.65 and Q2 EPS of $2.37.)
· The timing of the Company’s assessment of higher-than-expected medical costs for 2015 allowed the Company to reflect the impact of those costs in its 2016 Medicare Advantage bids, and the Company continues to target a 2016 Medicare pre-tax margin of 4.5 to 5 percent.
· An independent assessment of the Company’s Individual Medicare Advantage (excluding pharmacy) reserves as of May 31, 2015 indicates they are good and sufficient.

Adjusted EPS is a financial measure not in accordance with Generally Accepted Accounting Principles (GAAP). Non-GAAP financial measures are as follows:

· For the full year 2015, the Company’s projected GAAP EPS of approximately $9.28 was reduced to exclude $1.53 per share associated with the full amount of the expected gain from the sale of the company’s Concentra business, resulting in adjusted EPS of approximately $7.75.
· For the second quarter of 2015, the Company’s GAAP EPS guidance range of $2.78 to $2.83 was reduced to exclude $1.18 per share associated with the expected pretax gain from the sale of the Company’s Concentra business, resulting in adjusted EPS guidance range of $1.60 to $1.65.

Humana has included these non-GAAP financial measures since management believes these measures, when presented in conjunction with the comparable GAAP measure, are useful to both management and its investors in analyzing the company’s ongoing business and operating performance. Consequently, management uses these non-GAAP financial measures as an indicator of business performance, as well as for operational planning and decision-making purposes. These non-GAAP measures should be considered in addition to, but not as a substitute for, or superior to, the financial measures prepared in accordance with GAAP.

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