Humana's Profit Falls 39% on Investments, Drug Costs

Humana Inc., the second-biggest provider of U.S.-funded health insurance, reported a 39 percent decrease in quarterly profit on rising costs in its drug plans for the elderly and investments in financial companies.

Third-quarter net income fell to $183 million, or $1.09 a share, from $302.4 million, or $1.78 a share, a year earlier, the Louisville, Kentucky-based company said today in a statement on Business Wire. Profit excluding certain items beat analysts' estimates. Revenue climbed 13 percent to $7.15 billion. Humana forecast 2009 profit of $5.90 to $6.10 a share, more than analysts projected.

Earnings were reduced by 40 cents a share because of writedowns of investments. Such adjustments won't cripple Humana's $6.5 billion investment portfolio or require the company to raise capital, said Carl McDonald, an analyst with Oppenheimer & Co. in New York. The insurer can absorb as much as $1.3 billion in writedowns without danger, he said.

"Eighty-six percent of Humana's investments don't have much risk," McDonald wrote in an Oct. 10 note to clients. "Even if disaster strikes the rest of the company's investment portfolio, it still won't have a catastrophic impact on the rest of the company's business."

Humana didn't identify the impaired investments. Last month the company said in a corporate filing that it held $62 million in securities in Lehman Brothers Holdings Inc., now in bankruptcy proceedings, and $4.9 million in bonds from distressed insurer American International Group Inc.

Humana rose 51 cents, or 1.4 percent, to $36.27 on Oct. 24 in New York Stock Exchange composite trading. The shares were down 52 percent this year through last week.

The company reduced its profit goal for 2008 to $3.80 to $3.90 a share from the $4.30 to $4.40 announced Aug. 4. Third- quarter earnings per share, excluding the investment writedowns, beat the average $1.47 estimate of 15 analysts surveyed by Bloomberg.

Source: Bloomberg