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Aetna Profit, Up 15%, Beats Estimates

April 29, 1999|From Bloomberg News

HARTFORD, Conn. — Aetna Inc. said Wednesday its first-quarter earnings grew 15%, more than expected, as it raised premiums on employer health plans and shed unprofitable Medicare business.

The nation's largest health insurer reported profit from operations of $168.2 million, or $1.08 a share, up from $146.6 million, or 90 cents, a year ago, including costs for fixing the year 2000 computer bug in its systems. Revenue for the Hartford-based company, including capital gains, jumped 23% to $5.7 billion.

The results exceeded the $1.01-a-share average estimate of analysts surveyed by First Call Corp. and sent Aetna's shares rocketing $10.38 to $92 on the New York Stock Exchange.

Aetna said it renewed about half of its commercial HMO business in the first quarter, with premium increases averaging about 7%.

It also stopped serving Medicare patients through some of its HMOs after the federal government, which runs the health program for the elderly, slowed the growth of payments. Those actions helped the company counteract rising costs, analysts said.

Profit at Aetna's health insurance division, Aetna U.S. Healthcare, grew 26% to $116 million, including year 2000 costs.

Aetna offers managed health-care plans, which keep costs down by negotiating discounts with doctors and hospitals and giving patients incentives to seek treatment from its preferred health-care providers.

The company said its efforts to control drug costs, such as raising co-payments for certain brand-name prescription drugs, has kept the growth of its pharmacy costs below the average for the industry.

The 1997 balanced-budget law cut the expected growth in Medicare payments to health insurers, causing Aetna and other insurers to lose money on some Medicare HMOs in 1998. The company in September said it planned to exit Medicare HMOs in six states and other areas, effective Jan. 1.

The exits affected about 51,000 Medicare recipients, though Aetna added more than that through marketing efforts for its remaining Medicare HMOs.

Profit at its international unit, which sells health, life and other types of insurance outside the U.S., rose 20% to $43 million.

Earnings fell at the financial services unit, which sells investment products, by 21% to $47.3 million. The first quarter of 1998, though, included results from Aetna's individual life insurance business, which was sold to Lincoln National Corp. last October for $1 billion. Excluding results from that business, profit for the unit would have risen.

The company said it is "reasonably comfortable" with the range of analyst expectations for Aetna's 1999 earnings. Aetna is expected to earn $4.40 per share this year, the average estimate of analysts polled by First Call, with estimates ranging from $4.15 to $4.60.

At a Glance

Other earnings, excluding one-time gains and charges unless noted:

* DaimlerChrysler reported a 23% jump in first-quarter profit from operations to about $1.75 billion from $1.42 billion, as U.S. economic growth powered sales of Chrysler cars and Freightliner trucks. That was above analysts' estimates, which ranged from $1.39 billion to $1.71 billion, according to a Bloomberg survey. Revenue rose 10% to $37.82 billion. Sales in Europe and North America beat industry expectations and more than offset declines in Latin America and Asia.

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