LOUISVILLE, Ky. (AP) — Humana Inc. reported a 3.5 percent drop in fourth-quarter net income on Monday as the health insurer absorbed higher claims payments driven by the flu outbreak, which offset continued growth in its lucrative Medicare Advantage membership.
The performance still surpassed Wall Street expectations, though costs mounted into early this year from the worst flu season that the company said it had experienced in at least a decade.
Humana's stock was up $3.77 per share, or 5 percent, to $79.12 in morning trading.
In December, Humana was hit by an additional $25 million in flu-related medical costs, amounting to 10 cents per share, Chief Financial Officer Jim Bloem told industry analysts during a conference call.
"These incremental flu costs primarily were driven by a sharp increase in hospital admissions associated with respiratory diagnoses," he said. "We saw these admission levels peak just before the middle of January, with steady abatement occurring since then."
The company estimates accumulating about $75 million in costs from those flu-related hospital admissions in late 2012 and early 2013, with some two-thirds of the amount occurring in this year's first quarter, Bloem said.
Looking ahead, the company said acquisitions and other investments made in the past year will position Humana for strong growth in coming years. It reaffirmed its 2013 earnings projection of between $7.60 and $7.80 per share.
Humana's fourth-quarter earnings were dragged by a higher percentage of premium dollars from its members that went to pay for medical claims in its key retail segment. As a result, quarterly pretax income in that segment fell $70 million from a year ago.
Humana, based in Louisville, Ky., reported net income of $192 million, or $1.19 per share, in the fourth quarter that ended last Dec. 31. That's down from $199 million, or $1.20 per share, in the year-ago period. Analysts polled by FactSet expected earnings of $1.07 per share.
Revenue rose to nearly $9.6 billion from nearly $9.1 billion. Analysts expected $9.7 billion.
For the full year, Humana posted net income of $1.2 billion, or $7.47 per share, compared with $1.4 billion, or $8.46 per share, a year ago. Revenue rose 6.2 percent to $39.1 billion.
Humana's quarterly performance appeared "relatively solid with few surprises," Leerink Swann analyst Jason Gurda said in a research note. He said the company's first quarter is "shaping up to be stronger than originally expected."
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