How Aetna Managed To Post Great Earnings, Despite Missing Revenue

Aetna Inc (NYSE: AET) came out with better-than-expected first-quarter results on Tuesday. Operating EPS for the company came at $2.39 on revenue of $51.1 billion, versus analysts' expectations of $1.95 and $15.5 billion respectively.

Ana Gupte from Leerink Partners, was on CNBC following the results to break down Aetna's quarterly numbers.

Second-Half Pressure

"It's a good report," Gupte said. "It's a 45 cent beat, a 30 cent raise. Typically, insurance companies don't raise by the magnitude of the beat. Aetna has a specific issue as well, the state of Kentucky has redid their contract [sic.]."

Related Link: Aetna Posts upbeat Q1 Profit, Lifts FY Earnings Outlook

Gupte continued, "So, the second half of the year, I am estimating as much as 10 cents of pressure from a reduced rate, and that might contribute to the 30 cent versus the 45 cent beat."

Beat On Earnings, Not On Revenue

Gupte was asked how Aetna was able to post such a strong EPS beat, even though revenue for the company came below expectations. She replied, "So, it's margins over membership, clearly. Aetna raised prices considerably for the employees [...] The commercial loss ratio, the medical loss ratio, the consolidated medical loss ratio both beat expectations substantially.

"And the miss on the revenue was the membership as opposed to pricing. It looks like it came from Medicare and Medicaid. It surprises me a little as to why the Street was so much higher on Medicare; we need to understand they lost a contract or something in the employee market," Gupte concluded.

 
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