PHSY--PacifiCare in the red, but rosy
If not for mandatory write-off, company would have earned $30 million.
May 2, 2002
By BERNARD J. WOLFSON
The Orange County Register
PacifiCare Health Systems Inc. reported a huge first-quarter loss Wednesday - yet its prospects seemed brighter than at any time in the past year and a half.
That's because the $858.8 million worth of red ink for the quarter was entirely because of a one-time charge, as the Santa Ana- based managed-care giant switched to a new national accounting rule requiring it to write off $897 million in costs associated with past acquisitions.
On paper, the quarterly loss compares with a $13.1 million gain a year earlier. But excluding the large write-off - and an unrelated one-time gain of $12.9 million - PacifiCare would have earned $30.1 million in the first quarter, up 11.9 percent from a similarly recalculated profit of $26.9 million a year earlier. Looking at those two figures, which analysts did, the company beat Wall Street expectations.
"An accounting charge is nothing that we're concerned about," said Jason I. Fox, an H&R Block Financial Advisers analyst. "Things continue to look better, but the company is still undergoing a major turnaround program, and it's going to take time."
During the quarter, PacifiCare appeared to turn the corner on containing health-care costs -- a problem that has bedeviled it since late 2000, when its profitability plunged.
The percentage of premiums it spent on patients' medical care dropped in the first quarter to 88.2 percent from 90.2 percent a year earlier. That expense ratio, widely watched on Wall Street, was lower for commercial and Medicare HMOs. "This was a very good quarter for PacifiCare," Chief Executive Howard Phanstiel said.
Though analysts were encouraged by PacifiCare's report, its stock dropped $1.95 in after-hours trading Wednesday after closing in regular trading at $31.70, up $1.44.
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