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Humana Falls Despite Beating Estimates

There was a 56% freefall in profit for the quarter.

Updated from 9:51 a.m. EST

Health insurer


(HUM) - Get Humana Inc. Report

reported earnings that came in 2 cents above expectations despite a 56% freefall in profit for the quarter.

Shares of the Louisville, Ky.-based company fell 3/8, or 5%, to 7 13/16 in afternoon trading Wednesday. (It closed down 5/8, or 7.6%, at 7 9/16.)

For the fourth quarter ended Dec. 31, net income fell to $25 million, or 15 cents a diluted share, from $57 million, or 34 cents a share, a year earlier. The consensus estimate of analysts polled by

First Call/Thomson Financial

was 13 cents.

The fourth-quarter figure for this year excludes an after-tax charge of $441 million, or $2.63 a diluted share. The pretax charge totals $495 million and is comprised of a $340 million write-off of goodwill for Humana's acquisitions of

Physician Corp. of America



, $120 million for selling its workers' compensation and Medicare supplement business at a loss and $35 million to strengthen reserves.

Revenue rose 4% to $2.57 billion from $2.47 billion a year ago.

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In a statement, Humana president and chief executive Michael McCallister called the results "clearly not acceptable." McCallister was promoted to the top spot last week.

"We are focused on our core business -- health insurance -- and we are aggressively selling noncore assets," he added. "The proceeds of our asset sales will be used to reduce debt and fund technology opportunities for the future."

Early last month, Humana announced it would sell two businesses at a loss. Its wholly owned workers' compensation subsidiary,

PCA Property & Casualty Insurance

, will go to

Folksamerica Holding

, a subsidiary of

White Mountains Insurance Group

(WTM) - Get White Mountains Insurance Group Ltd Report

, for $125 million in cash, and its Medicare supplement insurance business will end up with

United Teachers Associates Insurance

for an undisclosed amount. Also, earlier this week, the company announced the sale of most of its Medicaid business in Florida to

Well Care HMO

, also for an undisclosed amount.

Earnings in 2000 should be helped by those divestments, as well as the company's turnaround plan, launched last quarter. That includes exits from several Medicare markets, sharp rate increases and a revamping of benefits and products. An improving medical loss ratio, with prices outpacing costs, excluding Medicare, is also a bright spot.

"It feels like Humana might be making some progress in its turnaround plan," wrote analyst Joseph France of

Credit Suisse First Boston

in a report. "But for now, we would like more signs that Humana can accurately forecast its costs and produce sustainably higher margins. The $35 million charge to add to reserves that was announced today does nothing to allay our fears." He rates Humana a hold and has done no recent underwriting for the company.