April 28, 2020 / 12:59 PM / 3 months ago

UPDATE 3-Centene maintains 2020 outlook, but warns of higher medical costs

(Adds CEO, CFO comments, share movement)

By Trisha Roy and Manojna Maddipatla

April 28 (Reuters) - Centene Corp on Tuesday reiterated its profit target for 2020, but warned of higher medical costs in the second half of the year expecting its members to resume their elective health care procedures postponed due to the COVID-19 pandemic.

Shares of the health insurer fell 7.1% at $65.80, after Centene reported a lower-than-expected profit.

While several U.S. hospitals put elective surgeries on hold to free up more beds for patients diagnosed with coronavirus, some patients, leery of going to a hospital, also canceled their appointments.

But members with chronic conditions and other medical needs would eventually resume those procedures, leading to significantly higher costs in the third and fourth quarter, Chief Executive Officer Michael Neidorff said in a call.

The company also expects lower profits this year from its acquisition of smaller rival WellCare Health Plans Inc, a $15.27 billion deal completed in January, than it previously expected due to the virus-led shift in regulatory timelines.

Centene, however, maintains its adjusted profit of $4.56 to $4.76 for the year. The mid-point of the range was below the average analysts' estimate of $4.74, according to Refinitiv IBES data.

Rival UnitedHealth Group Inc also reaffirmed its financial targets for the year earlier this month.

Centene's guidance range reflects expected growth in Medicaid and Obamacare exchange membership as people lose jobs amid a global recession, BMO Capital Markets analyst Matthew Borsch said.

Medicaid health plans, which brought in 35.2% higher first-quarter revenue than a year earlier, formed 65.5% of Centene's total sales in the quarter.

It also increased its full-year revenue outlook to between $110 billion and $112.4 billion, from its earlier forecast of $104.8 billion to $105.6 billion.

The company said it was widening the range to reflect the lack of visibility around the magnitude and duration of the high unemployment rate in the United States.

"We have seen early evidence of membership growth in April," Centene's Chief Financial Officer Jeff Schwaneke said in a call.

"The additional membership will be a tailwind to 2020 earnings, particularly in our Medicaid business, although we expect normalization of enrollment during the second half of the year as the economic recovery progresses."

The company said its profit for the quarter was impacted by higher interest expenses due to increased borrowing to finance the WellCare deal.

Excluding items, the company reported adjusted profit of 86 cents per share, missing estimates of 99 cents per share.

Reporting by Trisha Roy and Manojna Maddipatla in Bengaluru, Editing by Sherry Jacob-Phillips and Shinjini Ganguli

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