Aetna Profit Beats Forecasts; Stock Falls 18%

Aetna Inc. on Tuesday posted stronger-than-expected profit for its fourth quarter but said it’s having trouble controlling medical costs, helping send its stock down 18%.

The nation’s largest health insurer said its operating earnings rose 30% to $173 million or $1.18 a share, from $144.5 million or 91 cents, a year ago. Revenue climbed 46% to $6.3 billion, with a big boost from the acquisition of Prudential HealthCare last year.

Aetna was expected to report $1.10 a share, the average estimate of analysts polled by First Call/Thomson Financial. Those estimates were cut last week after the firm announced the results of a Securities and Exchange Commission review of its publicly filed documents, including the accounting it used for transactions such as the Prudential HealthCare purchase.

Analysts said the company was able to surpass earnings forecasts only because of the sale of a subsidiary in Brazil and lower-than-expected taxes in several countries.

Shares of the Hartford, Conn.-based company were pummeled, closing off $9.75 at $46 on the New York Stock Exchange, because it reported that its medical costs, especially for the elderly, were higher than anticipated, analysts said.

Aetna shares have fallen 43% in the last six months. The shares have been hurt by concerns about the Prudential acquisition, potential class-action lawsuits alleging that the company and other health insurers didn’t disclose needed information, and the SEC review.

Aetna also has had to wage a public relations battle to protect its image against claims by consumer groups and medical providers who say the company skimps on care.

“The earnings reflect the difficult nature of the business, especially for a company that is under attack from so many outside sources,” said David Shove, an analyst with Prudential Securities.

In a key indicator of financial health, Aetna spent 95.3 cents of each dollar received in premiums on health-care costs in treating the elderly, up from 92.6 cents a year ago.

Aetna executives said in a conference call that medical costs are increasing by about 6% in the company’s commercial health maintenance organizations and by about 8% in its HMOs serving people on Medicare.

At a Glance

Other earnings, excluding one-time gains or charges unless noted, include:

* Barnesandnoble.com Inc. said its fourth-quarter loss widened to $38.4 million, or 27 cents a share, from $31.3 million, or 27 cents, a year ago, matching estimates. Sales tripled to $82.1 million from $25.9 million.

* Cigna Corp. said its earnings rose 31% in its fourth quarter to $296 million, or $1.66 a share, as it added new customers while charging employers more for health plans. The insurance company was expected to earn $1.38 a share, the average estimate of analysts polled by First Call/Thomson Financial. Revenue rose about 9.2% to $4.9 billion.

* Hasbro Inc.’s earnings rose 18% to $155.4 million, or 79 cents a share, well above forecasts of 74 cents, with a boost from strong demand for Pokemon merchandise and hand-held electronic games. The toy maker’s sales rose 22% to $1.59 billion. Analysts expressed concern, however, that Hasbro’s interactive software unit lost more than expected, on lower-than-anticipated sales and higher development costs.

Bloomberg News was used in compiling this report.