01—Abstract
Summary
Summary of the 8-K filed October 25, 2024. Cited figures are marked; the original filing is the authoritative source.
Centene Corporation (NYSE: CNC) reported third-quarter 2024 results on October 25, 2024, with GAAP diluted EPS of $1.36a and adjusted diluted EPS of $1.62, versus GAAP EPS of $0.87 and adjusted EPS of $2.00 a year earlier.
Premium and service revenues rose 6% to $36.9 billionb, driven by Medicaid rate increases, Marketplace growth and overall market growth, partly offset by Medicaid redeterminations and divestitures. The health benefits ratio deteriorated sharply to 89.2% from 87.0%, reflecting higher Medicaid acuity tied to redeterminations and Medicare Star rating impacts. Operating cash flow was negative $978 million for the quarter, largely due to Marketplace risk adjustment settlements and uncollected Medicaid rate increases.
Management reaffirmed full-year 2024 adjusted diluted EPS guidance of greater than $6.80c, but lowered GAAP diluted EPS guidance to greater than $5.92, which reflects non-recurring items. The company also highlighted a $0.10 benefit from a Marketplace premium tax item originally expected in Q4, meaning part of the quarter's EPS was pulled forward. Capital deployment remained active, with $1.2 billion of Q3 buybacks and $380 million more in October, bringing year-to-date repurchases to $2.4 billion and leaving $2.8 billion authorized.
For investors, the central tension is strong top-line and membership growth, including a 22%d increase in Marketplace membership and a 49% increase in Medicare PDP membership, against margin compression in Medicaid and Medicare. Improvement in Medicare Star ratings, with about 46% of Medicare Advantage members in plans rated 3.5 stars or higher versus about 23% a year earlier, is a positive multi-year signal, though the HBR trend and fourth-quarter implications warrant close monitoring.
02—Key points
Key Highlights
- Adjusted diluted EPS of $1.62 in Q3 2024 vs. $2.00 in Q3 2023, while GAAP diluted EPS was $1.36 vs. $0.87, which was depressed by a large prior-year impairment.
- Health benefits ratio rose to 89.2% from 87.0% year over year, driven by Medicaid acuity shifts from redeterminations and Medicare Star rating impacts; Medicaid HBR reached 93.1%.
- Premium and service revenues grew 6% to $36.9 billion, led by 35% growth in Commercial revenue, partly offset by a 1% decline in Medicaid revenue.
- Q3 adjusted EPS included a $0.10 benefit from a Marketplace premium tax item originally expected in Q4 2024, so part of the quarter's strength is timing-related.
- Operating cash flow was negative $978 million in Q3, driven by Marketplace risk adjustment settlements and uncollected Medicaid rate increases.
- Full-year 2024 adjusted diluted EPS guidance reaffirmed at greater than $6.80, while GAAP diluted EPS guidance lowered to greater than $5.92.
- Share repurchases of $1.2 billion in Q3 and $380 million in October; $2.8 billion remains under the buyback authorization.
03—Questions
Frequently Asked Questions
Did Centene maintain its 2024 earnings outlook?
Partly. Adjusted diluted EPS guidance was reaffirmed at greater than $6.80. GAAP diluted EPS guidance was updated to greater than $5.92, reflecting non-GAAP items such as amortization of acquired intangibles, acquisition-related expenses and other adjustments.
Why did the health benefits ratio increase so much?
Management attributed the increase from 87.0% to 89.2% mainly to higher Medicaid acuity as states continued redeterminations and rates were still being matched to member acuity. Medicare Star rating impacts also contributed.
How strong was membership growth?
Total membership rose to about 28.6 million from 28.0 million a year earlier. Marketplace grew 22% to 4.5 million and Medicare PDP grew 49% to 6.8 million, while Traditional Medicaid declined about 15%.
What drove the negative operating cash flow in Q3?
Operating cash outflow of $978 million was mainly due to settlement of 2023 Marketplace risk adjustment payables, Medicaid rate increases not yet collected and higher Part D receivables, partly offset by net earnings.
How is Centene returning capital to shareholders?
The company repurchased $1.2 billion of stock in Q3 and an additional $380 million in October, bringing 2024 year-to-date repurchases to $2.4 billion. About $2.8 billion remains under the current authorization.
04—Continue