Aetna Posts Higher Profits as Bertolini Refuses Comment on CVS Deal
KNIGHT RIDDER/TRIBUNE 3:04 PM ET 10/31/2017
Oct. 31--Aetna Inc.(AET) posted a nearly 11 percent jump in third-quarter profit on weak revenue Tuesday, while remaining silent on reports that CVS Health Corp.(CVS) is in talks to buy the Hartford health insurer.
Chief Executive Officer Mark Bertolini and Joseph F. Krocheski, vice president of investor relations, kicked off a conference call Tuesday with analysts by ruling out comments on "rumors or speculation."
"There's been a lot of speculation in the media about Aetna," Bertolini said. Media reports last week said CVS is looking to buy Aetna for $200 a share, or $66 billion.
The CEO instead discussed Aetna's announcement last week that it's selling its group life and disability business to The Hartford for $1.45 billion. Shedding the business "will enable us to focus capital and management attention on achieving our broader strategic objectives," he said.
Analysts see the sale of that business and possible purchase by CVS as leading a shift by Aetna from a strictly insurance company to a health care business that will use data to better understand illness, treatments, medication and numerous other details.
"Looking forward, our business model will be increasingly driven by data and the application of advanced analytics to enhance our understanding of each of our members," Bertolini said.
"We are building what I would call reusable and disposable databases where we can pull data together and do analytics," he said.
Data analytics can help track spending and patient enrollment, how to better approach employers in different markets and detect fraud, Bertolini said.
"It's a pretty big investment and I think we're just scratching the surface," he said.
Aetna is hiring "techies" who want difficult problems to solve and compensation is playing a big role in assembling the new workforce, Bertolini said.
Aetna's posted adjusted earnings for the quarter of $814 million, or $2.45 per share, were up from $734 million, or $2.07 per share in the third quarter of 2016, beating Wall Street estimates. Analysts expected adjusted net income of $687 million, or $2.08 per share, according to analysts.
Revenue of $14.96 billion was down 5 percent from $15.78 billion. That was below the $15.12 billion expected by analysts.
Reduced losses in its Obamacare business and improved performance across its core commercial business were credited for the quarter's results.
Aetna raised its profit guidance for the year, to about $9.75 per share, from an earlier range of $9.45 to $9.55. That beats Wall Street estimates of $9.56 per share, according to analysts surveyed by Bloomberg.
Chief Financial Officer Shawn Guertin said the strength of Aetna's "core business fundamentals" in the July-to-September period was due in part to a moderate medical cost trend.
Bertolini said Aetna is not much affected by two main agenda items in Congress: tax reform and the so far unsuccessful efforts to repeal and replace the Affordable Care Act. Aetna has exited Obamacare markets, saying the risk pools have contributed to driving up losses.
"I think our whole view is that the best thing to do when you're going through hell is just to keep going," he said. "Our strategy is not impacted by tax reform."
"Reform on the ACA: We're out," Bertolini said. "So when that gets right and stable we'll look at reconsidering on how we get in."
Aetna shares rose in pre-market trading on the higher profit and stronger 2017 outlook, but fell in morning trading, to $169.66, a nearly 1 percent drop.
