Foundation Health’s Profit Up 23%

Foundation Health Systems Inc., one of California’s biggest health insurers, said Tuesday second-quarter profit rose 23% as it raised premiums and held down drug and medical costs.

Net income rose to $38.7 million, or 32 cents a share, from profit from operations of $31.4 million, or 26 cents, a year earlier. Revenue rose 4.8% to $2.23 billion from $2.16 billion.

Woodland Hills-based Foundation was expected to earn 31 cents a share, the average estimate of analysts polled by First Call/Thomson Financial.

The company, which had about 3.8 million customers on June 30, said it raised premiums 10% from the year-earlier period. Still, its medical loss ratio--the percentage of premiums that goes to pay medical costs--rose to 85.2% from 84.6% a year earlier. Drug costs rose 9%, about what it expected, the company said.

Foundation shares rose 13 cents to close at $14.75 on the New York Stock Exchange. The shares are up 48% this year.

A 31% rise in investment income to $25.5 million helped the company beat estimates by 1 cent.

The company raised 2000 earnings estimates to about $1.32 from $1.30 and 2001 earnings to $1.52 from $1.50 based on expected changes in its tax rate.

Foundation’s Health Net subsidiary serves more than 2 million customers in California and has contracts with more than 400 hospitals and 4,300 pharmacies, making it one of the biggest health insurers in the state.

Chief Executive Jay Gellert said the company soon will change its name to Health Net Inc.

“This marks the end of our turnaround period and the beginning of a new period marked by strong top line and bottom-line growth,” Gellert told analysts.

Enrollment grew by 30,000 members over the second quarter of 1999 and jumped 46,000 since the end of the first quarter of 2000. Monthly premiums per member rose 8%, the company said.

Medical costs are likely to rise about 7% and premiums about 8% next year, the company said.

Gellert also said Foundation will consider selling its Florida health plan, which is small and has faced rising medical costs.

Foundation could be looking at another round of cost increases, though, despite a decline in medical costs in California and the Northeast during the quarter. It is ending contracts that paid doctors and hospitals fixed rates for treating patients, analysts said, and replacing them with contracts that more closely reflect actual costs.

The company told analysts it has successfully shifted from fixed-rate contracts in California and thinks it can do so in other markets.

At a Glance

Other Southland company earnings, excluding one-time gains and charges unless noted:

* Camarillo-based AML Communications Inc., a maker of amplifiers and other products for wireless devices, reported fiscal first-quarter loss of $779,000, or 12 cents per share, compared with a net loss of $187,000, or 3 cents, a year ago. Revenue fell to $1.5 million from $2.3 million. The company attributed the loss to delays in shipping to a key customer.

* Cadiz Inc., a Santa Monica-based water development and agricultural resources firm, reported second-quarter operating loss of $1.3 million, or 18 cents per share, on revenue of $27.0 million. A year ago, the company reported operating profit of $2.7 million, or 6 cents, on revenue of $26.2 million.

* CB Richard Ellis Services Inc., a Los Angeles-based commercial property broker, said second-quarter profit rose 63% as it gained more leasing and sales transactions. Net income rose to $5.5 million, or 26 cents a share, from $3.4 million, or 16 cents, a year ago. Revenue rose to $317.8 million from $277.2 million. The results beat estimates.

* Marina del Rey-based Scheid Vineyards Inc. reported second-quarter net loss of $619,000, or 11 cents per share, compared with a net loss of $411,000, or 7 cents, a year ago. Revenue rose 12% to $303,000.

* Tejon Ranch Co. reported a second-quarter net operating loss of $215,000, or 2 cents a share, compared with a net loss of $575,000, or 5 cents, a year ago. Revenue rose to $16.2 million from $6.7 million. The landowner’s rise in revenue was due largely to the sale of 9,400 heads of cattle during the period.

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Firmer Foundation

Foundation Health Systems shares have risen 48% this year as it has held down costs that have plagued the company since it was formed by merger in 1997.

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FHS shares, monthly closes and latest:

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Tuesday: $14.75, up 13 cents

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Source: Bloomberg News