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Cigna misses forecasts
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August 1, 2001: 11:03 a.m. ET
Health insurer's income up less than expected as revenue declines
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NEW YORK (CNNfn) - Cigna Corp. posted higher second-quarter earnings Wednesday but the results fell short of Wall Street forecasts, and the third-largest U.S. health insurer also warned about the second half of the year.
Cigna (CI: down $11.61 to $88.70, Research, Estimates) stock tumbled more than $11on the news.
Additionally, rival Oxford Health Plans Inc. (OHP: down $1.39 to $27.61, Research, Estimates) breezed past second-quarter forecasts as the company piled on new subscribers and revenue growth.
Philadelphia-based Cigna now expects 2001 operating earnings of $7.00-to-$7.25 a share and a profit of $1.70-to-$1.80 a share in the third quarter, Chief Financial Officer James Stewart said in a conference call after the company reported results.
Analysts on average anticipated a profit of $1.87 for the third quarter and $7.37 for 2001, according to earnings tracker First Call.
The changed forecasts stem from rising medical costs and a weak stock market that has dampened business at its employee retirement benefits and investment management services, executives said.
For the second quarter, Cigna earned $262 million, or $1.73 a share, excluding a $22 million charge related to the sale of its reinsurance business. That was up from $1.71 a share a year earlier but below forecasts of $1.77 a share, according to earnings tracker First Call.
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Including charges and one-time items, Cigna posted net income of $252 million, or $1.66 a share, up from $161 million, or 99 cents a share, a year earlier.
Revenue for the quarter fell to $4.6 billion from $5 billion.
"Cigna's earnings for the quarter reflect continued strong demand for our indemnity and specialty health-care products as well as the challenges of escalating medical costs on our managed care operation," CEO Edward Hanway said.
Cigna warned in May that medical costs were rising more than expected and that the stock market was dampening its retirement plan business.
Credit Suisse First Boston analyst Joseph France lowered his investment rating on Cigna to hold from buy, citing disappointing retirement plan results and higher medical costs. The investment bank lowered 2001 earnings estimates by 15 cents per share to $7.25 and the 2002 outlook by 20 cents to $8.15.
For the latest quarter, total medical membership was 14.3 million, compared with 14.3 million in the first quarter and 14.1 million a year ago.
Cigna's commercial HMO medical risk loss ratio was 85.7 percent compared with 84.6 percent in last year's second quarter. The medical risk loss ratio is the percentage of premiums paid to cover medical costs.
Meanwhile, Oxford Health Plans reported second quarter net income of $74.8 million, or 73 cents a share, higher than the $37 million, or 41 cents a share, it posted a year earlier. Analysts on average anticipated profit of 56 cents a share, according to First Call.
Revenue grew to $1.1 billion from $1 billion.
The company added 10,000 commercial members in the period bringing the total to 1.37 million.
"Oxford had a financially successful quarter and our enrollment growth was positive. We are, however, cautious about general economic conditions," CEO Norman C. Payson said. 
From staff and wire reports
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