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Anthem expects profit boost from tax cuts as health-industry shifts loom

January 31, 2018

Anthem Inc. reported a fourth quarter decline in operating profit Wednesday morning, but the Indianapolis-based company said it expects President Donald Trump’s corporate tax cuts to increase its 2018 earnings despite looming changes in the health insurance industry.

Anthem's overall profit surged to $1.23 billion, or $4.67 per share, in the fourth quarter, up from $368.4 million in the fourth quarter of 2016.

Earnings, adjusted for one-time gains and costs, were $1.29 per share, or 4 cents better than Wall Street had expected, according to a survey by Zacks Investment Research.

Revenue rose 4.4 percent, to $22.68 billion, also topping analyst expectations.

The company reported a total operating gain of $381 million in the period, down from $653 million in the fourth quarter of 2016. Anthem blamed the decline in part on an “increased investment spend to support growth initiatives.”

For the year, Anthem reported profit of $3.84 billion, or $14.35 per share. Revenue was $89.1 billion.

Medical enrollment totaled about 40.2 million members as of Dec. 31, 2017, an increase of 325,000, or 0.8 percent, from 39.9 million on Dec. 31, 2016.

The company said adjusted earnings this year are expected to exceed $15 a share, with the recent U.S. tax overhaul providing roughly a 15 percent boost to profits.

“2018 guidance is overall stronger than we expected,” Matt Borsch, an analyst at BMO Capital Markets, said in a note to investors.

Gail Boudreaux, Anthem’s new CEO, is confronting a rapidly changing industry. Anthem in October said that it plans to start its own pharmacy-benefits operation, in collaboration with CVS Health Corp. In early December, CVS agreed to buy Anthem’s rival, Aetna Inc.

Meanwhile, three massive employersJPMorgan Chase & Co., Berkshire Hathaway Inc. and Amazon.com Incsaid Tuesday that they are planning to create a health company of their own, potentially offering new competition for insurers like Anthem. The corporate behemoths said their new company, still in its formative stages, would be designed to drive down costs.

The news sent Anthem’s shares lower by 5.3 percent on Tuesday, their biggest drop in more than two years. Shares of other insurers and pharmacy-benefits managers also plummeted. Many made up some of the lost ground on Wednesday amid a wider stock-market advance.

On a conference call with analysts, Chief Financial Officer John Gallina said Anthem’s Affordable Care Act insurance plans were “slightly” profitable last year, a better result than the company’s expectation they would break even.

The insurer markedly reduced its ACA offerings for 2018, halting sales on Obamacare’s marketplaces entirely in states including Indiana, Maine, Nevada and Ohio, while pulling back in big markets such as California.

Anthem shares rebounded Wednesday morning, rising 3.1 percent, to $250.94 each.

 

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