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Earnings Miss but Revs Beat at Magellan

Zacks Equity Research

Magellan Health Services Inc. (MGLN) reported fourth-quarter 2013 operating net income of 67 cents per share, missing the Zacks Consensus Estimate of 87 cents by 19.3%. The number also declined substantially by 49.2% year over year.

Increase in expenses more than offset the increase in top line, leading to a year-over-year decline.

Operational Update

Magellan Health’s total net revenue grossed $1 billion in the fourth quarter, which surpassed the Zacks Consensus Estimate of $945 million by approximately 6.7%. The results improved 21.4% year over year. The increased net revenue came on the back of higher sales derived from managed care and other as well as PBM and dispensing.

Total cost and expenses of Magellan Health moved up 26.9% year over year to $979.8 million during the reported quarter. The rise primarily stemmed from higher cost of care, cost of goods sold and direct service cost and other operating expenses.

Magellan Health generated segment operating profit of $55.9 million during the reported quarter, which slipped almost 39% year over year.

Segment Update

Commercial: Revenues were down 2.2% year over year to $188.8 million.

Operating profit at the segment also reduced 10.6% from the year-ago quarter.

Public Sector: Revenues grossed $491.2 million during the fourth quarter, increasing 18.5% from the prior-year quarter.

However, operating profit at this segment declined 37.2% year over year to $23.7 million during the quarter.

Specialty Solutions: Revenues grossed $98.7 million during the fourth quarter, increasing 3.5% from the prior-year quarter.

Operating profit for the segment came in at $17.7 million declining 8.9% from the comparable quarter in the previous year.

Pharmacy Management: Revenues amounted to $62.6 million, improving 10.8% year over year.

Operating profit at this segment also moved up 17.7% from the comparable year-ago period.

Full-Year 2013 Highlights

Magellan Health reported operating net income of $4.53 per share missing the Zacks Consensus Estimate of $4.70 per share. The number also decreased 16.4% year over year. The bottom-line decline resulted from higher expenses during the year.

Revenues totaled $3.55 billion, up 10.6% year over year. Top-line growth was primarily driven by higher managed care and other revenues.

Financial Update

Magellan Health exited 2013 with cash and cash equivalents of $203.2 million compared with $189.5 million as of 2012-end.  

Net cash provided by the operating activities of Magellan Health was $183.2 million during 2013. It inched up by 1% from the 2012 number.

Capital expenditure by Magellan Health amounted to $64.5 million during 2013 as against $69.5 million reported in 2012.


Magellan Health reiterated its previously disclosed guidance and expects its 2014 net revenue to range between $3.6 billion and $3.8 billion. Net income is expected to hover within $57 to $73 million and segment profit between $215 million to $235 million.

The company also maintains its estimation for cash flow from operations in the range of $181 million to $203 million. Operating net income is expected to range between $2.02 and $2.58 per share considering the impact of the share buyback activity till Feb 26, 2014.  

Performances by Other

Molina Healthcare Inc. (MOH) reported fourth-quarter net operating loss of 3 cents a share, wider than the Zacks Consensus Estimate loss of 1 cent a share. The number also considerably lags the year-ago quarter’s earnings of 65 cents per share.

Humana Inc.’s (HUM) fourth-quarter 2013 operating loss came in at 19 cents per share. The results substantially lagged the Zacks Consensus Estimate of earnings of 93 cents as well as the year-ago earnings of $1.19 per share.

WellPoint Inc. (WLP) reported fourth-quarter 2013 adjusted income of 87 cents per share, beating the Zacks Consensus Estimate by a penny. However, adjusted income declined from the year-ago earnings of $1.03 per share.

Zacks Rank

Magellan Health presently carries a Zacks Rank #3 (Hold).

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