Anthem's (ANTM) Q2 Earnings Beat Estimates, Increase Y/Y

Anthem Inc. (NYSE:ANTM) delivered second-quarter 2019 earnings of $4.64 per share, marginally beating the Zacks Consensus Estimate by 0.7%. Additionally, the bottom line improved 9.2% year over year on the back of higher revenues.

Further, Anthem reported operating revenues of $25.2 billion, beating the Zacks Consensus Estimate by 2.1%. Moreover, the top line was up 10.8% year over year, aided by membership growth across businesses and the premium rate increases to cover the overall cost trends. However, this upside was partially offset by the year-long waiver of the health insurance tax in 2019.

Quarterly Operational Update

Medical enrollment inched up 3.3% year over year to 40.9 million members, backed by growth in Medicaid and Medicare, partly offset by the declines in Commercial & Specialty Business enrollment.

Anthem’s benefit expense ratio of 86.7% expanded 330 basis points (bps) from the prior-year quarter. The increase was attributable to one-year waiver of the health insurance tax in 2019 and the medical cost in the Medicaid business.

SG&A expense ratio of 13% contracted 210 bps from the year-ago quarter towing to the year-long waiver of the health insurance tax in 2019 plus growth in the operating revenues.

Strong Segmental Results

Commercial & Specialty Business

Operating revenues were $8.9 billion in the second quarter, down 1.1% year over year.

Operating gain totaled $983 million, down 6.2% year over year. This decline is due to the effect of higher favorable risk adjustor adjustments recognized in 2018.

Operating margin was 10.4%, down 120 bps year over year.

Government Business

Operating revenues were $15.5 billion, up 14.1% from the prior-year quarter.

Operating gain was $478 million, down 10.2% year over year due to persistently elevated medical cost experience in Medicaid across select states and the one-year waiver of the health insurance tax in 2019. However, the same was offset by out-of-period revenue adjustments and Medicare membership improvement.

Operating margin was 3.1%, down 80 bps year over year.

Other

The Other segment’s operating loss of $28 million is wider than the year-earlier quarterly loss of $21 million.

Financial Update

As of Jun 30, 2019, Anthem’s cash and cash equivalents summed $4.1 billion, up 3.7% from 2018 end.

As of Jun 30, 2019, its long-term debt less current portion inched up 1.3% to $17.4 billion from the level at 2018 end.

Operating cash outflow at the end of the first six months of 2019 was $3.1 billion, up 11.2% year over year.

Capital Deployment

During the second quarter, Anthem bought back shares worth $458 million. As of Jun 30, 2019, the company had shares worth around $4.7 billion remaining under its share buyback authorization.

Moreover, the company paid out a quarterly dividend of 80 cents per share, adding up to a distribution of cash worth $206 million.

The company announced a third-quarter dividend of 80 cents per share on Jul 23, 2019, payable Sep 25 to shareholders of record on Sep 10, 2019.

Revised Guidance for 2019

Based on solid second-quarter results, Anthem has updated its outlook for 2019. The company’s adjusted net income is now expected to be higher than $19.30 per share, up from the prior projection of $19.20.

Medical membership is still estimated in the range of 41-41.3 million, tightened from the earlier expectation of 40.9-41.3 million.

Operating revenues are predicted to be around $102 billion including the premium revenues of $93-$94 billion. Operating cash flow is envisioned to be higher than $5.2 billion.

SG&A ratio is forecast in the band of 13.2-13.5%.

The company estimates the benefit expense ratio to be 86.2-86.5%.

Zacks Rank

Anthem carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases From Medical Sector

Molina Healthcare, Inc (NYSE:MOH) is set to report second-quarter earnings performance on Jul 29. The consensus estimate for second-quarter earnings is pinned on $2.56. The stock sports a Zacks Rank #1.

WellCare Health Plans, Inc. (NYSE:WCG) is set to report second-quarter earnings on Jul 30. The Zacks Consensus Estimate for the same is pegged at $4.10. The stock has a Zacks Rank #2 (Buy).

Humana Inc. (NYSE:HUM) is set to report second-quarter earnings on Jul 31. The Zacks Consensus Estimate for the same stands at $5.24. The company has a Zacks Rank of 3.

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