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PacifiCare heals itself
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August 5, 1998: 1:00 p.m. ET
After a troubled 1997, Medicare HMO posts a 172% surge in 2Q profit
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NEW YORK (CNNfn) - Despite a general decline in membership, PacifiCare Health Systems Inc. reported a nearly 172 percent increase in second-quarter net income Wednesday as a recovery effort aimed at undoing the damage from a disastrous 1997 began to bear fruit.
Class-A shares of the Santa Ana, Calif.-based company (PHSYA), which operates the nation's largest Medicare health-maintenance organization through its Secure Horizons Program, jumped 5-9/16 to 74-7/16 in midday trading on the Nasdaq Wednesday.
In addition to Medicare services, the company provides dental and vision care, psychological counseling, and pharmacy and radiology services in 14 states, primarily on the West Coast and Southwest.
In recent months, however, the company has been fighting an uphill battle to integrate rival FHP International Inc., which it acquired for $2 billion in February 1997. The buyout doubled PacifiCare's membership to about 4 million, but proved a drag on profits.
That, along with losses incurred from a money-losing unit in Utah, which PacifiCare subsequently spun off, caused extensive financial bleeding in last year's fourth quarter.
The first sign of a turnaround came in the first quarter of 1998, when PacifiCare beat Wall Street earnings expectations on signs that FHP was generating modest profits for its new parent.
Total net income in the second quarter rose 171.6 percent to $48.9 million, or $1.06 a diluted share, from $18 million, or 37 cents a share, in the year-ago period. The latest numbers topped Wall Street forecasts by 18 cents.
Revenues climbed to $2.396 billion from $2.381 billion.
The company attributed the gains to vigilant cost cutting and increased revenues from its Prescription Solutions, Secure Horizons USA and PacifiCare Behavioral Health subsidiaries.
"With half of the year concluded, we are feeling increasingly confident that the difficulties of 1997 are behind us and that PacifiCare is back on solid footing," Alan Hoops, president and chief executive officer, said.
For the first half, PacifiCare said total operating revenue rose 13 percent to $4.8 billion from $4.2 billion a year ago. Earnings through the first half were $90 million, or $1.96 a diluted share, up from $61 million, or $1.44 a share, a year earlier.
PacifiCare said its total membership fell 5 percent to about 3.7 million at June 30 from 3.8 million a year earlier. Commercial membership slipped 6 percent, while government membership fell 2 percent. 
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PacifiCare
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