CHICAGO, Feb. 9, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Sara Lee Corp. (NYSE: SLE), Coventry Health Care Inc. (NYSE: CVH), Unitedhealth Group, Inc. (NYSE: UNH), Aetna Inc. (NYSE: AET) and WellPoint Inc. (NYSE: WLP).
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Here are highlights from Tuesday's Analyst Blog:
Sara Lee Misses but Reaffirms
Sara Lee Corp. (NYSE: SLE) reported strong operating income growth for the second quarter of fiscal 2011, driven by significant improvement in operating segment income across the company, particularly in the North American Retail and International Beverage business segments and lower corporate expenses.
Adjusted earnings for the quarter were 24 cents a share compared to 27 cents during the same period of fiscal 2010. Earnings were also a penny below the Zacks Consensus Estimate of 25 cents.
Net sales for the quarter were almost flat year-over-year at $2.3 billion, declining 0.4% as favorable sales mix and higher prices were offset by lower unit volumes and unfavorable foreign currency. Total unit volumes for the quarter decreased by 5.8% year-over-year due to innovative new products, successful trade spending and strategic pricing initiatives.
The North American Retail segment adjusted net sales were $754 million, up 1.2% year over year due to favorable sales mix into higher-margin products which was partially offset by the impact of trade spending and the exit from commodity and kosher meat businesses.
The North American Foodservice segment sales decreased 2.4% to $517 million, due to the loss of two large customer contracts in fiscal 2010, a high-volume, low-margin bakery contract lost in the third quarter and a low-volume, high-margin liquid coffee contract lost in the fourth quarter.
International Beverage sales increased 6.7% year-over at $896 million, largely due to unfavorable foreign currency exchange rate gains.
The International Bakery segment sales decreased 7.2% to $185 million, due to continued macro-economic headwinds and competitive pressures.
Gross margin for the quarter contracted 279 basis points (bps) to 34.0% versus 34.8% in the comparable prior-year quarter. The company recorded an operating profit of $206 million compared to a profit of $269 million in the prior-year quarter. During the quarter, commodity costs increased by approximately 127 million, while marketing, advertising and promotional spending increased 2% during the quarter.
Coventry Beats, Posts Outlook
Coventry Health Care Inc. (NYSE: CVH) reported its fourth-quarter adjusted earnings of $142.1 million or 96 cents per share, exceeding the Zacks Consensus Estimate of 89 cents. Full year 2010 earnings were $546.4 million or $3.70 per share, which also surpassed the Zacks Consensus Estimate of $3.61.
Coventry's adjusted earnings in the fourth quarter excludes the favorable impact of 5 cents from the Medicare Advantage Private Fee-for-Service (MA-PFFS) product, while full-year earnings excludes the favorable impact of 45 cents from the MA-PFFS product and an unfavorable impact of $1.18 per share from the previously announced Louisiana provider class action litigation. The Medicare offering stands discontinued from January 1, 2010.
Including the impact of this item, Coventry reported net income of $150.3 million or $1.01 per share in the fourth quarter as opposed to $109.1 million or 74 cents per share in the prior-year period. Net income in the fiscal 2010 was $438.6 million or $2.97 per share, as against the net income of $242.3 million or $1.64 per share in fiscal 2009, which included loss from discontinuing operations and provision for income taxes.
The improved showing was due to continued emphasis on cost containment throughout the organization and excellent liquidity position.
Behind the Headlines
Total operating revenues in the reported quarter declined 12% year over year to $3.03 billion, but exceeded the Zacks Consensus Estimate of $2.99 billion. Coventry's operating revenues in fiscal 2010 also plummeted 17% year over year to $11.59 billion, but exceeded the Zacks Consensus Estimate of $11.56 billion.
During the fourth quarter, managed care premiums decreased 13% to $2.73 billion, while revenues from management services declined by 4% year over year to $294.6 million. Similarly, Coventry's managed care premiums in fiscal 2010 plunged 18% year over year to $10.41 billion, while revenues from management services declined by 1% year over year to $1.17 billion.
Coventry witnessed total operating expenses for the reported quarter of $2.79 billion, down 14% from the year-ago quarter. Medical costs, the major operating expense component, fell 17% to $2.16 billion. Though Coventry's cost of sales jumped in the quarter, selling, general and administrative expenses (SG&A expenses) and depreciation and amortization (D&A) dropped over the said period.
Total operating expenses were $10.90 billion in the fiscal 2010, down 19% fyear over year. Medical costs also declined 24% to $8.27 billion. Coventry's cost of sales surged 5% in fiscal 2010; however, SG&A expenses and D&A fell 9% and 6%, respectively in the reported year.
Total membership in the quarter increased 4.4% to 5.1 million from the prior quarter.
Comparisons with Competitors
Rival company Unitedhealth Group, Inc. (NYSE: UNH) reported fourth-quarter results on January 20, 2010. Income from continuing operations was 94 cents per share, substantially better than the Zacks Consensus Estimate of 90 cents. Full year EPS of $ 4.10 surpassed the Zacks Consensus Estimate of $3.99.
Aetna Inc. (NYSE: AET) reported fourth-quarter profit from continuing operations of 63 cents per share on February 4, well ahead of the Zacks Consensus Estimate of 61 cents. Full-year 2010 core operating earnings were $3.68 per share, ahead of the Zacks Consensus Estimate of $3.63.
WellPoint Inc. (NYSE: WLP) reported fourth-quarter results on January 26 with income from continuing operations of $1.33 per share, surpassing the Zacks Consensus Estimate of $1.21. WellPoint also posted its earnings of $6.74 per share in FY10, surpassing the Zacks Consensus Estimate of $6.60.
Outlook for 2011
For fiscal 2011, Coventry expects to earn between $2.50 and $2.70 per share, excluding the impact from MA-PFFS as well as other one-time charges.
Coventry projects risk revenue of $10.35 billion to $10.80 billion and management services revenue of $1.16 billion to $1.19 billion for fiscal 2011.
The company expects its consolidated revenue guidance to a range of $11.51 billion - $11.99 billion. Coventry's consolidated MLR is expected between 82.0% and 82.8% in fiscal 2011.
Coventry anticipates cost of sales in the range of $255.0 million to $263.0 million, with SG&A expenses in the range of $2.00 billion to $2.04 billion, D&A between $135.0 million and $141.0 million, and interest expense in the range of $80.0 million to $85.0 million in fiscal 2011.
Coventry's other income is expected to range between $69.0 million and $74.0 million in fiscal 2011.
Shares outstanding at year end 2011 are expected to be 147.0 million to 150.0 million.
Coventry has a solid fundamental business and continues to grow with all seven core businesses performing at or above internal expectations. Further, we believe that Coventry is also growing on the acquisition front, as it is making continuous efforts to expand its footprint in Missouri and Arkansas.
On October 1, Coventry completed the acquisition of Mercy Health Plans ("MHP") and its subsidiaries from Sisters of Mercy Health System for an undisclosed amount. Coventry said the acquisition is expected to be slightly accretive to its 2011 earnings and will serve more than 1.2 million members in its six-state Midwest region.
We believe that Coventry's acquisitive growth strategy will help it to leverage its regional service centers and improve operating efficiencies, largely through economies of scale.
We maintain a Neutral recommendation on Coventry in the long term. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
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