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PacifiCare healthy in Q1
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May 5, 1998: 11:57 a.m. ET
HMO's earnings still down but beat forecast as merger problems ease
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NEW YORK (CNNfn) - PacifiCare Health Systems Inc. reported a dip in first-quarter earnings Tuesday but beat Wall Street estimates by 17 cents a share as a once-troubled merger of last year begins to bear fruit.
The Santa Ana, Calif.-based company said first-quarter 1998 earnings were $41 million, or 90 cents a diluted share, compared with $43 million, or $1.12 a diluted share, in the year-ago quarter.
The analysts' consensus estimate, as compiled by First Call, was for earnings per share of 73 cents.
PacifiCare shares (PHSYB) were up 3 at 74-7/8 in trading Tuesday morning after the report.
"After a disappointing 1997, we are pleased to begin 1998 with such a solid start," said Chief Executive Officer and President Alan Hoops. "We are pleased to have been able to report earnings results for this quarter that were above our initial expectations."
First-quarter revenues rose 29 percent to $2.4 billion from a year ago.
PacifiCare is still working through a $2 billion buyout of rival FHP International Corp., which was completed in February last year and has proven to be a drag on the company.
PacifiCare said a key segment of its business saw lower costs as a percentage of revenue, a result of lower prescription drug costs, better pricing and re-negotiated deals with health-care providers.
The HMO also said "other income" doubled as a result of a new prescription drug program.
But that may just be a one-time benefit and shouldn't be factored in to future targets, said Bear Stearns analyst Gary Frazier.
So the gain on Wall Street Tuesday, Frazier said, "may just be a knee-jerk reaction to the fact that 90 cents a share was so much better than expected."
Administrative costs as a percentage of revenue rose last quarter, but PacifiCare said synergies with the FHP buyout that could lead to future cost savings.
Total membership fell about 4 percent to about 3.7 million as PacifiCare exited certain product lines and geographic markets.
About one-fifth of Americans who are in a Medicare HMO are members of PacifiCare, which has about 3.7 million members in 10 states and Guam. 
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PacifiCare
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