Humana Inc. Reports Detailed Second Quarter 2007 Financial Results

Humana Reports Detailed Second Quarter 2007 Financial Results

Full year EPS expected to grow more than 50 percent in 2007
Lower administrative costs primarily from efficiency and productivity gains
Improving medical expense ratios in both segments
GAAP cash flows from operations up 33 percent year to date
Non-GAAP cash flows from operations up 71 percent year to date

Humana Inc. (NYSE: HUM) today reported financial results for the quarter ended June 30, 2007 (2Q07) including diluted earnings per common share (EPS) of $1.28, as announced in the company’s July 18, 2007 press release. The company earned $0.53 per share for the quarter ended June 30, 2006 (2Q06). The year-over-year improvement in second quarter results reflected higher operating earnings in both of the company’s business segments, primarily driven by efficiency gains in its consolidated administrative costs as well as medical expense ratio improvement.

As also announced on July 18, 2007, the company estimates EPS for the year ending December 31, 2007 (FY07E) will be in the range of $4.40 to $4.50 versus $2.90 for the year ended December 31, 2006 (FY06).

“An across-the-board focus on operational excellence led to an extremely strong second quarter,” said Michael B. McCallister, Humana’s president and chief executive officer. “These same dynamics are expected to fuel Humana’s performance for the remainder of the year and position us well for growth into the future.”

For the six months ended June 30, 2007 (1H07) the company reported $1.70 in EPS compared to $1.03 for the six months ended June 30, 2006 (1H06). Results for 1H06 included approximately $0.19 per share of venture capital gains that did not recur in 1H07. The year-over-year increase in 1H07 financial results was primarily due to better operating performance in both business segments.

Revenues – 2Q07 consolidated revenues rose 19 percent to $6.43 billion from $5.41 billion in 2Q06, with total premium and administrative services fees up 18 percent compared to the prior year’s quarter. This year-over-year increase was primarily driven by higher average Medicare membership versus 2Q06.

1H07 consolidated revenues rose 25 percent to $12.63 billion from $10.11 billion in 1H06 with total premium and administrative services fees up 25 percent compared to the prior year’s period, also primarily driven by higher average enrollment in the company’s Medicare plans.

Medical costs – The 2Q07 consolidated medical expense ratio (medical expenses as a percent of premium revenues or MER) of 83.4 percent was 170 basis points lower than the 2Q06 MER of 85.1 percent as a result of MER improvement in both the Government and Commercial segments.

The consolidated MER for 1H07 of 85.1 percent was 70 basis points higher than the 1H06 consolidated MER of 84.4 percent, as the year-over-year increase in the Government Segment MER resulting from the Medicare Part D claims pattern outweighed the improvement in the Commercial Segment MER.

Selling, general, & administrative (SG&A) expenses – The 2Q07 consolidated SG&A expense ratio (SG&A expenses as a percent of premiums, administrative services fees and other revenue) decreased 70 basis points to 13.0 percent for 2Q07 from 13.7 percent in 2Q06. The year-over-year decline was primarily the result of improving administrative cost efficiency and productivity gains associated with servicing the company’s 11.3 million medical members.

The SG&A expense ratio for 1H07 of 13.2 percent was 160 basis points lower than that for 1H06 of 14.8 percent also primarily driven by efficiency and productivity gains.