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Molina Healthcare (MOH) Q1 Earnings Miss, Revenues Beat

Molina Healthcare Inc. MOH reported first-quarter 2016 adjusted net income per share of 51 cents that missed the Zacks Consensus Estimate of 81 cents by 37.04%. Earnings also decreased 8.9% year over year.

Including one-time items, net income per diluted share came in at 43 cents, down 23.2% year over year.

Reduced Medicaid Expansion premium rates that lowered income before taxes by around 55 cents per diluted share mainly led to the underperformance.

Operational Update

Total revenue surged 37% year over year to $4.3 billion. The upside was mainly driven by a 34% year-over-year increase in premium revenues along with higher service revenues, premium tax revenues, Health insurer fee revenues and investment income. The top line also surpassed the Zacks Consensus Estimate of $4.1 billion by 4.8%.

Premium revenues grew by 34% year over year to $4.0 billion due to strong enrolment growth. Enrollment growth was strong primarily driven by increased Marketplace enrolment, acquisitions and the start-up of the Puerto Rico health plan. However, consolidated premium revenues declined 6% due to lower per-member-per-month premiums for Medicaid Expansion and Marketplace.

Service revenues surged 169% year on year.

Further, Molina Healthcare’s investment income soared 167% year over year to $8 million. Premium tax revenues also increased 14.7% to $109 million in the first quarter.

Total operating expenses rose 37.7% year over year to $4.2 billion. The increase was due to 36.1% higher Medical care costs, a 253% increase in cost of service revenues32.8% rise in general and administrative expenses, 14.7% higher premium tax expenses, a 41.5% increase in HIF expenses,  a 28% increase in depreciation and amortization costs, all on a year-over-year basis.

Operating income grew 8.5% year over year to $89 million in the quarter.

Additionally, Molina Healthcare’s interest expenses increased 66.7% year over year to $25 million. Medical care ratio (ratio of medical care costs to premium revenues) was 89.8%, up 110 basis points year over year.

Financial Update

As of Mar 31, 2015, Molina Healthcare’s cash and cash equivalents were $2.2 billion compared with $2.3 billion at year-end 2015. As of Mar 31, 2016, total assets increased to $7.2 billion from $6.6 billion at the end of 2015. Molina Healthcare’s shareholder equity inched up 2% over 2015 end to $1.6 billion at reported quarter end.

Net cash from operating activities amounted to $139 million in the quarter against $554 million a year ago primarily due to receivables and prepaid expenses and other assets.

2016 Outlook

Molina Healthcare revised its full-year outlook to account for higher-than-expected medical care costs in its Ohio and Texas health plans, margin pressures due to higher pharmacy costs across business in general and particularly in Puerto Rico. Nonetheless, the company expects to achieve its long-term goal of 1.5–2% profit margin by fourth-quarter 2017. Net income per diluted share is expected to be in the range of $2.15 - $2.60 in 2016.

Zacks Rank and the Performance of Other Insurers

Molina Healthcare currently holds a Zacks Rank #2 (Buy). Among the other health maintenance organizations (HMOs) that have reported first-quarter earnings so far, the bottom line at UnitedHealth Group Incorporated UNH, Anthem Inc. ANTM and Aetna Inc. AET have surpassed their respective Zacks Consensus Estimate.

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