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FHP Reports 39% Rise in Annual Profit : Earnings: HMO's revenue hits record $2 billion. Stock price gains 7% as results exceed analysts' expectations.

September 03, 1993|ANNE MICHAUD | TIMES STAFF WRITER

FOUNTAIN VALLEY — A healthy increase of about 123,000 members, along with higher premiums, helped FHP International Corp. increase its annual profit 39% on a record $2 billion in revenue.

The health-maintenance organization's performance exceeded analysts expectations, which helped push its stock price more than 7% to $25.75 Tuesday.

FHP said it also reduced administrative costs during the year, which improved its earnings. And it reduced its so-called medical loss ratio, bringing this important indicator of financial health closer to the national average.

The percentage of revenue spent on health care, or medical loss ratio, declined from 84% to 83.8% during the year, said Mike Montevideo, vice president and treasurer of FHP. The national average is 81%. Medical loss ratios and enrollment increases are the two most important figures analysts use to weigh the health of an HMO.

"We still see gradual progress ahead" in further reducing the medical loss ratio, Montevideo said.

Administrative costs as a percent of revenue declined from 14.3% to 13.4%.

For the year ended June 30, FHP reported that its revenue grew from $1.6 billion in the previous year to $2 billion, a gain of 26%. Net income increased from $31.8 million to $44.2 million. Earnings per share increased from 97 cents to $1.33--3 cents more than analysts had predicted.

Overall, membership reached 838,000, an increase of 17%. Commercial membership grew 15%, FHP said, and Senior Plan enrollment grew 20%.

Results exclude a one-time payment of $5.2 million the company made in the previous fiscal year and a one-time receipt of $6.9 million in fiscal 1993. The earlier payment settled a class-action stockholder suit; the latter was a payment from FHP's malpractice insurance company.

Robert Hoehn, health care services analyst with Bear Stearns & Co. in New York, said the results were "pretty good, considering they're 3 cents higher than I predicted."

He said expansions the company plans in Texas and Colorado bode well for the coming year. Colorado has very little service of the type provided by FHP's Senior Plan, Hoehn said, and Texas has a population similar to other states where FHP has done well: Utah, Arizona and Nevada.

Another analyst, Eleanor H. Kerns of the investment bank Alex. Brown & Sons in Boston, said FHP is well positioned for any changes in the health-maintenance field because it has combined a staff model (where doctors are employees) and network model (where doctors are under contract).

"They're in a unique position to exploit the strengths of both," said Kerns, who added that the combination of staff and network programs is rare.

The company also released fourth-quarter results Thursday.

Quarterly evenue increased to $561.4 million from $427.5 million in the year-earlier quarter, an increase of 31%. Net income was up 51% to $17.1 million, and earnings per share increased from 35 to 51 cents.

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