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Humana, Unitedhealth, Allergan, Medicis Pharma and Johnson & Johnson

^{Published on 2010-08-03 14:05:43 - Market Wire}
 

CHICAGO--([ BUSINESS WIRE ])--Zacks.com Analyst Blog features: Humana Inc. (NYSE: [ HUM ]), Unitedhealth Group, Inc. (NYSE: [ UNH ]), Allergan, Inc. (NYSE: [ AGN ]), Medicis Pharma (NYSE: [ MRX ]) and Johnson & Johnson (NYSE: [ JNJ ]).

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Here are highlights from Mondaya™s Analyst Blog:

Humana Beats, Ups Outlook

On August 2, 2010, Humana Inc. (NYSE: [ HUM ]) reported its second-quarter earnings (excluding special items) of $2.11 per share, well ahead of the Zacks Consensus Estimate of $1.63. This also compares favorably with the earnings of $1.67 in the year-ago quarter.

Further, the adjusted earnings surpassed managementa™s guidance of $1.65-$1.70. The better-than-expected showing was attributable to strong performance at Humanaa™s Government segments along with Commercial segmenta™s improvement, helped by increased enrollment in its Medicare programs for the elderly.

On a reported basis, Humana earned $2.00 per share. Results included 55 cents from the write-down of certain deferred acquisition costs (aDACa) coupled with 14 cents from higher-than-expected favorable prior-year medical claims reserve development, and 30 cents from higher-than-expected favorable first quarter 2010 medical claims reserve development.

Behind the Headlines

Consolidated revenues for the reported quarter climbed 10.0% year-over-year to $8.65 billion. Revenues from premium and administrative services fees also increased 10% year-over-year on the back of growth in membership for the health insurera™s Medicare Advantage plans and strict pricing across all lines of business. The increase was partially offset by the decline in membership in the stand-alone Prescription Drug Plan and commercial plans.

Government membership as of June 30, 2010, stood at 6,989,200, which reflected an increase of 1.4% year-over-year, while Commercial membership as of June 30, 2010, stood at 3,285,100, posting a decline of 4.7% year-over-year. Total medical membership however plunged 0.7% year-over-year to 10,274,300. Humana's Medicare Advantage membership at the end of the second quarter jumped nearly 17.4% from the prior-year quarter.

Humana reported selling, general & administrative (SG&A) expenses of $1.16 billion, up 15.7%, while benefit expenses increased only 7.7% to $6.86 billion. Depreciation jumped 19.8% year-over-year to $60.7 million coupled with a 12.6% decline of other intangible amortization to $8.6 million in the reported quarter.

Pretax income from the Government segment in the reported quarter was $451.2 million, while the Commercial segment witnessed a pretax income of $115.2 million in the reported quarter. Consolidated pretax income was $566.4 million in the quarter.

Consolidated benefit ratio, which reflects the percentage of benefit expenses in premium revenues, was unchanged at 83.3% from the prior-year quarter, while it shows the improvement in the benefit ratios in both the Government as well as the Commercial segment. Humanaa™s consolidated SG&A expense ratio improved 100 basis points to 11.8% in the current quarter, reflecting efficient scales of operations associated with higher average Medicare Advantage membership, along with continued focus on administrative cost reductions.

Evaluation of Capital and Balance Sheet

Cash flows from operations improved in the reported quarter and came in at $325.3 million, with cash flows provided by operations of $161.9 million in the prior-year quarter, owing to higher net income year-over-year. Humana exited the quarter with cash and cash equivalents of $2.0 billion and long-term debt of $1.7 billion.

As of June 30, 2010, debt-to-total capitalization declined 110 basis points from March 31, 2010 to 20.5%, primarily due to the increase in capitalization associated with increased net income during the quarter.

During the reported quarter, Humana repurchased 1,025,000 of its outstanding shares at an average price of $48.76, leaving approximately $200 million at the end of August 1, 2010 out of the $250 million authorized for repurchases in December 2009, which is effective until December 31, 2011.

As of June 30, 2010, Humanaa™s total assets were $15.7 billion and total shareholdersa™ equity was $6.5 billion.

Comparison with Competitors

Rival, Unitedhealth Group, Inc. (NYSE: [ UNH ]) reported its second quarter results on July 20, 2010. Unitedhealtha™s second-quarter income from continuing operations was 99 cents per share, substantially better than the Zacks Consensus Estimate of 75 cents. This also compares favorably with 73 cents in the year-ago period.

Outlook

For the third-quarter of 2010, Humana expects to earn in the range of $1.65-$1.75 per share. For fiscal 2010, the company has revised its outlook. It now expects to earn within $5.65 - $5.75 per share, compared to its previous guidance of $5.55 to $5.65 per share. The improved outlook is expected on account of better second quarter performance and its revised forecast for the second half of 2010.

However, the fiscal 2010 outlook includes favorable prior-year reserve development of 51 cents per share and 55 cents of DAC write down. Excluding these, Humana expects an adjusted earnings outlook for fiscal 2010 in the range of $5.69-$5.79.

Furthermore, the company reiterates its consolidated revenues in the range of $33.5 billion and $34.5 billion in 2010.

Humanaa™s Medicare Advantage membership is expected to increase 250,000 to 260,000 from the prior-year quarter.

Humana also anticipates the benefit costs ratio for the Government segment in the range of 84.5% to 85.0% and for the Commercial segment in the range of 78.5% to 79.5% for fiscal 2010. Humana expects the consolidated SG&A expense ratio within 13.5% to 14.0%.

Depreciation and interest expenses are expected to lie in the range of $250 million to $260 million and $105 million to $110 million, respectively for fiscal 2010.

Humana also projects cash flows from operations in the range of $1.3 billion to $1.5 billion, while it expects capital expenditure to be approximately $200 million.

Allergan Beats Zacks Estimates

Allergan, Inc. (NYSE: [ AGN ]) reported second quarter earnings of 85 cents per share, 4 cents above the Zacks Consensus Estimate and the guidance issued by the company. While earnings increased 13.3% from the year-ago quarter, revenues increased 10.3% to $1,247.2 million. Revenues exceeded the Zacks Consensus Estimate of $1,206 million. Allergan also declared a second quarter dividend of 5 cents per share.

Sales by Product

Specialty pharmaceuticals sales increased 10% to $1,013.2 million, with eye care pharmaceutical sales increasing 9.8%. Strong performance of products like Lumigan, Restasis and Latisse helped drive eye care sales. This was partially offset by weaker sales from the Alphagan and Combigan franchise, which increased just 0.3% to $104.3 million. We believe sales were impacted by the entry of generic competition for Alphagan 0.15%. We expect Alphagan franchise sales to remain weak in 2010. In fact, the company expects sales to decline to $370 million - $390 million in 2010. Alphagan and Combigan franchise sales were $414.5 million in 2009.

Going forward, Lumigan sales should receive a boost following the launch of the product in the EU, where it received approval earlier this year. New product Latisse contributed $23.9 million to second quarter sales.

We were pleased to see a 7% increase in Botox sales, which came in at $360.5 million. Botox sales had been affected in 2009 by weak consumer spending, concerns regarding its safety record, and increased competition in the form of Medicis Pharmaa™s (NYSE: [ MRX ]) Dysport.

Going forward, Allergan is looking to grow Botox sales by gaining approval for additional indications. The company recently gained approval for the use of Botox for the treatment of increased muscle stiffness in the elbow, wrist and fingers in adults with upper limb spasticity. Allergan is also seeking approval of Botox for the treatment of chronic migraine. While Allergan received approval in the UK for the treatment of headaches in adults who have chronic migraine, US approval is yet to come.

For 2010, Allergan expects total specialty pharmaceuticals net sales in the range of $3,835 million - $3,930 million, up from the earlier guidance of $3,780 million - $3,930 million. Sales should be driven by Botox (guidance: $1,360 million - $1,390 million), Lumigan franchise (guidance: $490 million - $510 million), Restasis (guidance: $580 million - $600 million) and Latisse (guidance: $90 - $100 million).

While the migraine control indication could be a multi-hundred million-dollar opportunity for Botox, the spasticity indication, which affects about 1 million Americans, especially after a stroke, could bring in incremental sales in the range of $200 - $300 million.

Meanwhile, Allergana™s medical devices segment also delivered growth with sales increasing 10.6% to $218.5 million. While breast aesthetics sales increased 9.5% to $81.6 million, facial fillers sales increased a whopping 32.3% to $75 million. However, obesity intervention sales disappointed with sales declining 6.6% to $61.9 million. The medical devices segment faces competition primarily from companies like Johnson & Johnson (NYSE: [ JNJ ]) and Medicis.

Medical devices net sales are expected in the range of $785 million - $820 million in 2010 (earlier guidance: $770 million - $820 million). Here, performance will be driven mainly by breast aesthetics (guidance: $290 million - $300 million) and facial aesthetics (guidance: $260 million - $270 million). The US approval of Juvederm XC, Allergana™s latest facial filler product, should help drive facial aesthetics sales. Obesity intervention sales are now expected in the range of $235 million - $250 million, down from the earlier guidance of $250 million - $270 million

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