Aetna tops Q4 profit forecast despite revenue dip

In its first earnings release since announcing its proposed transaction with CVS, Aetna reported a better-than-expected quarterly profit despite seeing its revenue dip.

The insurer said its adjusted net income for the fourth quarter of 2017 totaled $411 million, or $1.25 per share. That beat analysts' consensus estimate of $1.20, but was a 29% decrease compared to Q4 2016—a change the company attributed to targeted spending on growth initiatives and “lower favorable development of prior-period healthcare costs estimates."

Aetna’s full-year adjusted earnings were $3.3 billion, or $9.86 per share—representing a 20% increase compared to 2016. The company said that trend was primarily due to the strong performance of its healthcare segment.

The company’s fourth-quarter revenue, meanwhile, dropped 6% year over year to $14.85 billion, and its full-year revenue dipped 4% to $60.5 billion. Aetna attributed that in part to lower membership in its ACA-compliant products—which is not unexpected since the insurer has reduced its footprint in that market. The company said the revenue decrease was offset by higher premium yields in Aetna’s commercial and government businesses, as well as membership growth in its Medicare products.

As for the impact of tax reform, Aetna said it expects the lower corporate rate will increase its gross 2018 adjusted earnings by approximately $800 million. The company expects at least 50% of that will accrue to adjusted earnings.

UnitedHealth said earlier this month that it expects corporate tax reform will increase its earnings and cash flows by $1.7 billion in 2018.

Aetna did not hold a conference call to discuss its financial results due to its pending transaction with CVS—a deal that it expects will close in the second half of this year.

In a separate announcement on Monday, the company said it had entered into a four-year reinsurance arrangement with a newly formed company called Vitality Re IX Limited.

Aetna says the arrangement is part of its “long-term capital management strategy."

“Today’s transaction marks the successful completion of our ninth reinsurance arrangement under the Vitality Re program,” Aetna Treasurer David Buda said. “The Vitality Re program remains an integral component of our capital structure by lowering our cost of capital and driving capital efficiency.”