Humana Earnings Slide; Shares Drop

Humana (HUM Quote) said Monday that its third-quarter earnings declined from the same period a year earlier, partly because of losses in the company's investment and securities lending portfolios, and the insurer cut its forecast for the current fiscal year.

The company earned $1.09 a share in the quarter, compared with $1.78 a share for the same period a year earlier. The latest quarter included 40 cents a share in losses, primarily associated with impairments in Humana's portfolios and sales of securities issued by distressed financial institutions.

Excluding those losses, Humana would have earned $1.49 a share, at the upper end of the company's prior guidance of $1.45 to $1.50. Third-quarter revenue was $7.2 billion, up 13% year on year.

For the full year, Humana is now looking for earnings of $3.80 to $3.90 a share, well below its earlier guidance that it would have a profit of more than $4. Analysts, on average, are calling for $4.37.

However, for 2009 the company projected earnings of $5.90 to $6.10 a share, above expectations for $5.85. Still, shares of Humana sank 15% on the session.

During the quarter, Humana took $108 million in losses on investments and securities, resulting in a net loss of $16.8 million on investing activities. With an additional investment loss of $4.2 million projected for the fourth quarter, investment income will be down around $160 million for the year, and for management, looking forward is perhaps the best strategy.

Government pretax income was down 45% to $271.7 million compared with the prior year, despite the 20% increase in Medicare Advantage members. Commercial pretax income fell 82% to $11.2 million.