Aetna Announces Lower-than-Expected Earnings, Stock Falls

Aetna Inc. delivered some "bleak news" yesterday, saying that its first-quarter financial results would be "significantly lower" than analysts' predictions and that operating forecasts would likely fall short of its own projections, the Hartford Courant reports. Aetna had estimated that medical costs for its non-Medicare health plans had risen 12% in last year's fourth quarter and would climb another 10% this year. But the company now says that costs rose 13% in the last quarter of 2000. This year's first-quarter financial results "will reflect $90 million worth of additional medical costs," about half of which is related to expenses from Aetna's Medicare HMO plans (Levick, Hartford Courant, 4/11). Aetna also had anticipated earnings of $1.20 to $1.30 per stock share for the year. While the company did not offer new earnings projections for the first quarter, analyst Roberta Goodman of Merrill Lynch Global Securities said she projected Aetna would earn no more than 45 to 50 cents per share for the year (Treaster, New York Times, 4/11). John Szabo, executive director of equity research at CIBC World Markets added, "It's a throw-away year for [Aetna]. This is the third year in a row they've missed their own earnings estimates." Aetna Chair and CEO Dr. John Rowe said, "These continued increases in medical costs are clearly unacceptable and do not reflect the positive potential of Aetna." The announcement sent Aetna's stock "tumbling" 17.6%, or $6.35 per share, down to $29.80, the "lowest point since the company was spun off to shareholders of the 'old Aetna' in December."

The anticipated financial results increase the "pressure" on Aetna to "boost its dismal bottom line at the same time it is trying to repair its much-maligned reputation by becoming more friendly," the Courant reports (Hartford Courant, 4/11). The Times reports that Aetna's "new attitude" actually might have contributed to its recent financial "woes." Goodman said, "Being kinder and gentler has its consequences" (New York Times, 4/11). William McKeever, a UBS Warburg analyst, said that "as the company has loosened its grip" on doctors and beneficiaries, "the company's cost controls may have suffered." Other analysts say that as Aetna has raised prices to cover higher costs, it might have lost some of its healthier members, who use fewer services and would help the company earn higher profits (Martinez, Wall Street Journal, 4/11). And while the "entire health care industry has been struggling with rising medical costs," Aetna, in particular, seems to be "managing worse" than its counterparts. Todd Richter, a Banc of America Securities analyst, said, "This is an industry with the wind at its face. But most of the companies are navigating way better than Aetna" (New York Times, 4/11).