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Aetna slashing 6,000 jobs
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December 13, 2001: 1:30 p.m. ET
Health care provider looking to streamline, boost competition.
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NEW YORK (CNN/Money) - Aetna Inc. said Thursday it would slash 6,000 jobs, or 16 percent of its work force, as the nation's biggest health insurer seeks to cut costs and boost profits.
Aetna, which plans to take a $125 million fourth-quarter charge as a result, said 4,400 of the cuts would be through job eliminations, with the remainder coming through attrition.
The insurer became the latest in a string of large corporations to announce significant job cuts in the last few days including American Express (AXP: down $0.49 to $32.93, Research, Estimates) and Applied Materials (AMAT: down $2.64 to $42.23, Research, Estimates) on Wednesday and Qwest Communications (Q: down $0.30 to $11.80, Research, Estimates) Thursday.
The U.S. unemployment rate has risen to 5.7 percent as companies slashed hundreds of thousands of jobs as the economy first slowed, and was then pushed into recession after the Sept. 11 terrorist attacks.
Aetna (AET: down $0.16 to $30.88, Research, Estimates) stock tumbled in early trading Thursday, but gained most of it back by midday, down just 7 cents at $30.97.
The company said price increases set earlier this year led members to drop out of the company's medical plans. Those declines are expected to continue "materially" in 2002 as the company withdraws some HMO products and exits selected Medicare markets.
J.P. Morgan analyst Lori Price said the cuts were not surprising given that Aetna has been saying for some time that it needs to trim expenses. However, the size of the cuts, which came on top of an 8 percent reduction a year ago was surprising, she said.
"What it suggests is that they experienced more revenue erosion than they had counted on for January," Price said. "It's encouraging for the long-term. They have a much higher cost base than they should given the size of their company so they need to right-size it. It's hard to lay off that many people, but they need to do it. I give them credit."
However, she said investors who were hoping to see a the company post a significant turnaround in January are likely to be disappointed. Instead, she expects a slower recovery for Aetna that will build throughout 2002.
Until then, she is maintaining her "market perform" rating on the stock.
Merrill Lynch analyst Roberta Goodman believes the company is still at risk of further cost-control measures going forward as membership continues to decline.
"Due to continued operating challenges at the company, we remain cautious on Aetna and continue to rate the shares intermediate and long-term 'Neutral'," Goodman said in a research note Thursday.
The cuts are "being taken to properly align our business resources with lower membership levels and our stated goal of emphasizing profitability over size," CEO John Rowe said in a statement.
The news comes a little more than a month after Hartford, Conn.-based Aetna posted a wider third-quarter loss, blaming higher medical costs associated with its restructuring. At the time, Aetna said benefits from restructuring would not be evident until 2002 or 2003.
Aetna, along with the rest of the insurance sector, has seen higher costs associated with the Sept. 11 terrorist attacks on the World Trade Center and Pentagon. Though Aetna did not cite the attacks for its higher costs Thursday, the company said in September that it anticipates $10 million to $15 million in pretax losses from the attacks. 
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