Aetna (AET) Tops Q3 EPS by 37c, Miss on Revenues; Offers FY17 EPS Guidance Above Consensus
Aetna (NYSE: AET) reported Q3 EPS of $2.45, $0.37 better than the analyst estimate of $2.08. Revenue for the quarter came in at $14.95 billion versus the consensus estimate of $15.12 billion.
Total Company Results
- Net income(1) was $838 million for third-quarter 2017 compared with $604 million for third-quarter 2016. The increase in net income during third-quarter 2017 was primarily due to the increase in adjusted earnings described below and lower transaction and integration-related costs in 2017 compared to 2016.
- Adjusted earnings(2) were $814 million for third-quarter 2017 compared with $734 million for third-quarter 2016. The increase in adjusted earnings during third-quarter 2017 was primarily due to continued strong performance in Aetna\'s Health Care segment.
- Total revenue and adjusted revenue(3) were $15.0 billion and $14.9 billion, respectively, for third-quarter 2017 and were $15.8 billion and $15.7 billion, respectively, for third-quarter 2016. The decrease in total revenue and adjusted revenue during third-quarter 2017 was primarily due to lower premiums in Aetna\'s Health Care segment, including lower membership in Aetna\'s ACA compliant individual and small group products, and the temporary suspension of the health insurer fee (\"HIF\") in 2017.
- Total company expense ratio was 17.4 percent and 17.9 percent for the third quarters of 2017 and 2016, respectively. The adjusted expense ratio(5) was 17.5 percent and 17.6 percent for the third quarters of 2017 and 2016, respectively. The improvement in both ratios during 2017 was primarily due to the temporary suspension of the HIF in 2017 and the continued execution of Aetna\'s expense management initiatives, largely offset by targeted investment spending on Aetna\'s growth initiatives. The total company expense ratio also improved due to lower transaction and integration-related costs in third-quarter 2017 compared to 2016.
- After-tax net income margin was 5.6 percent and 3.8 percent for the third quarters of 2017 and 2016, respectively. The adjusted pre-tax margin(6) was 9.2 percent and 8.5 percent for the third quarters of 2017 and 2016, respectively. The improvement in both third-quarter 2017 ratios was primarily due to continued strong performance in Aetna\'s Health Care segment. The improvement in the adjusted pre-tax margin was partially offset by the negative impact of the temporary suspension of the HIF in 2017.
- Total debt to consolidated capitalization ratio(7) was 39.5 percent at September 30, 2017 compared with 53.6 percent at December 31, 2016. The total debt to consolidated capitalization ratio at September 30, 2017 reflects (i) Aetna\'s decision to pre-fund debt maturities of approximately $1.0 billion coming due in the fourth quarter of 2017 with the issuance of $1.0 billion aggregate principal amount of senior notes during the third quarter of 2017 and (ii) the repayment of approximately $11.6 billion aggregate principal amount of Aetna\'s senior notes during the first half of 2017.
- Effective tax rate was 33.4 percent for third-quarter 2017 compared with 44.4 percent for third-quarter 2016. The decrease in Aetna\'s effective tax rate for third-quarter 2017 was primarily due to the temporary suspension of the non-deductible HIF in 2017 and anticipated incremental tax benefits related to certain costs associated with the Humana transaction incurred in 2017.
GUIDANCE:
Aetna sees FY2017 EPS of $9.75, versus the consensus of $9.50.
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