Cigna profit beats, investors eye rebate rule change

[February 01, 2019]   (Reuters) - Cigna Corp posted a better-than-expected quarterly profit on Friday, but forecast revenue and earnings below Wall Street estimates for the first full year after the health insurer closed its acquisition of pharmacy benefits manager Express Scripts.

Shares in the company dipped 5.5 percent to $188.90 in early trade, with investors fretting over the aftermath of proposals from the U.S. government to end rebates which help underpin pharmacy benefits businesses.

Ending the decades-old system would be a blow to Express Scripts and rivals including UnitedHealth's Optum and CVS Health which act as middlemen in the pharmaceuticals supply chain.

Express Scripts on Thursday said it was evaluating the proposed rule, but noted rebates help keep premiums low for Medicare beneficiaries. Cigna executives are due to hold a conference call with analysts at 8:30 a.m. ET.

Shares of both CVS and UnitedHealth were also trading lower on Friday.

"We expect stock to be down today from the HHS proposal released last night," Evercore ISI's Michael Newshel wrote in a note. "(It has) the intention of pushing the industry away from drug rebates."

Cigna forecast 2019 adjusted income from operations in the range of $16.00 to $16.50 per share. Analysts were expecting $16.74 per share, according to Refinitiv IBES.

The earnings forecast is at the minimum threshold for expectations, Newshel said, adding that Cigna is probably being conservative.

The health insurer also said it expected 2019 adjusted revenue of between $131.50 billion and $133.50 billion, lower than the consensus estimate of $133.60 billion.

Cigna reported an 80.9 percent quarterly medical care ratio - the amount it spends on medical claims compared to income from premiums. This beat consensus estimates of 81.6 percent according to Evercore ISI.

Total medical customers rose 3.6 percent to 16.96 million in the fourth quarter from a year earlier.

Cigna's net income fell to $144 million, or 55 cents per share, in the quarter ended Dec. 31, from $266 million, or $1.07 per share, a year earlier.

Excluding items, Cigna earned $2.46 per share, as the company reigned in medical costs in the quarter, which recorded about 11 days of earnings as a combined company with Express Scripts. Analysts on average had expected $2.42 per share.

Cigna's adjusted revenue rose to $13.75 billion, beating estimates of $11.59 billion.

(Reporting by Tamara Mathias and Saumya Sibi Joseph in Bengaluru; Editing by Maju Samuel)
 

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