Why did GAAP EPS grow faster than adjusted EPS in the quarter?

GAAP diluted EPS of $9.85 benefited from a $240 million gain on the sale of a business, worth about $1.03 per share. Adjusted EPS excludes this gain, along with amortization of intangibles, net losses on financial instruments, and transaction and integration costs. Adjusted EPS of $10.12 rose 12%, a more representative measure of underlying performance.

Is the decline in Medicaid membership a long-term concern?

Medicaid membership fell 23.2% year over year to about 9.0 million, mainly due to eligibility redeterminations and footprint adjustments, with most losses concentrated in the first quarter. Management indicated that growth in ACA individual plans and commercial fee-based membership partly offset these losses. Investors should watch whether Medicaid attrition stabilizes and how premium rate increases hold up as membership shifts.

Why did operating cash flow decline so sharply?

Year-to-date operating cash flow was $2.4 billion versus $8.4 billion a year earlier. The decline included $4.3 billion of timing-related items and $1.3 billion of net outflows tied to medical claims payable, largely from lower Medicaid membership. The company did not specify when these timing items will reverse, so the second half of 2024 cash generation is a key watch item.

Does the company expect its full-year 2024 earnings to change?

Elevance maintained its full-year 2024 outlook, forecasting GAAP diluted EPS of at least $34.05 and adjusted diluted EPS of at least $37.20. The CEO described the outlook as prudently maintained and expressed confidence in the earnings power of its Health Benefits and Carelon businesses.

Is the quarterly dividend secure, and what is the capital return outlook?

The Board's Audit Committee declared a $1.63 per share third-quarter dividend, payable September 25, 2024, to shareholders of record on September 10, 2024. In the quarter, the company repurchased 0.9 million shares for $462 million and had about $3.2 billion of repurchase authorization remaining. Parent-company cash and investments were about $2.4 billion, so the company's ability to sustain buybacks and dividends depends on improving cash flow.

ELV 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed July 17, 2024. Cited figures are marked; the original filing is the authoritative source.

Elevance Health (ELV) reported second quarter 2024 results that beat on earnings while revenue was roughly flat.

Operating revenue was $43.2 billion^a, down 0.4% year over year, as Medicaid membership attrition offset higher premium yields and CarelonRx product growth. Adjusted diluted EPS was $10.12, up 12%, and GAAP diluted EPS was $9.85, up 26%, helped by a $240 million gain on the sale of a business. Total operating gain rose 5.2% to $2.8 billion, and operating margin expanded 30 basis points to 6.4%.

The quality of the quarter was mixed. The benefit expense ratio improved 10 basis points to 86.3%^b, reflecting premium rate increases to cover medical cost trend and disciplined commercial underwriting. Days in claims payable fell to 45.3 days.

However, the operating expense ratio rose 60 basis points to 11.7% (50 basis points to 11.5% excluding adjustment items) due to targeted investment and integration spending. Health Benefits revenue fell 2% and its operating gain was flat at $2.1 billion^c, while Carelon revenue grew 10% to $13.3 billion and its operating gain rose 8% to $0.7 billion, driven by risk-based arrangements in Carelon Services. Cash generation weakened sharply.

Year-to-date operating cash flow was $2.4 billion^d, down $6.0 billion year over year, including $4.3 billion of timing-related items and $1.3 billion of outflows tied to medical claims payable. Management maintained its full-year 2024 outlook, with GAAP EPS of at least $34.05 and adjusted EPS of at least $37.20, and declared a $1.63 per share third-quarter dividend. Investors will likely focus on whether the cash flow shortfall reverses in the second half and whether Medicaid attrition stabilizes.

02—Key points

Key Highlights

Adjusted diluted EPS of $10.12 rose 12% year over year, while GAAP diluted EPS of $9.85 rose 26%, aided by a $240 million gain on sale of a business.
Operating revenue of $43.2 billion declined 0.4% as Medicaid membership fell 23% to 9.0 million, partly offset by premium yield increases and CarelonRx growth.
Benefit expense ratio improved 10 basis points to 86.3%, while the operating expense ratio rose 60 basis points to 11.7% on targeted investment and integration costs.
Carelon segment revenue grew 10% to $13.3 billion and operating gain rose 8% to $0.7 billion, led by risk-based arrangements in Carelon Services.
Year-to-date operating cash flow was $2.4 billion, down $6.0 billion year over year, with $4.3 billion of timing items and $1.3 billion of outflows from lower medical claims payable.
Full-year 2024 guidance was maintained, with GAAP EPS of at least $34.05 and adjusted EPS of at least $37.20.
Capital return continued: $462 million of share repurchases in the quarter, about $3.2 billion of authorization remaining, and a $1.63 quarterly dividend declared for Q3 2024.

03—Questions

Frequently Asked Questions

Why did GAAP EPS grow faster than adjusted EPS in the quarter?
GAAP diluted EPS of $9.85 benefited from a $240 million gain on the sale of a business, worth about $1.03 per share. Adjusted EPS excludes this gain, along with amortization of intangibles, net losses on financial instruments, and transaction and integration costs. Adjusted EPS of $10.12 rose 12%, a more representative measure of underlying performance.
Is the decline in Medicaid membership a long-term concern?
Medicaid membership fell 23.2% year over year to about 9.0 million, mainly due to eligibility redeterminations and footprint adjustments, with most losses concentrated in the first quarter. Management indicated that growth in ACA individual plans and commercial fee-based membership partly offset these losses. Investors should watch whether Medicaid attrition stabilizes and how premium rate increases hold up as membership shifts.
Why did operating cash flow decline so sharply?
Year-to-date operating cash flow was $2.4 billion versus $8.4 billion a year earlier. The decline included $4.3 billion of timing-related items and $1.3 billion of net outflows tied to medical claims payable, largely from lower Medicaid membership. The company did not specify when these timing items will reverse, so the second half of 2024 cash generation is a key watch item.
Does the company expect its full-year 2024 earnings to change?
Elevance maintained its full-year 2024 outlook, forecasting GAAP diluted EPS of at least $34.05 and adjusted diluted EPS of at least $37.20. The CEO described the outlook as prudently maintained and expressed confidence in the earnings power of its Health Benefits and Carelon businesses.
Is the quarterly dividend secure, and what is the capital return outlook?
The Board's Audit Committee declared a $1.63 per share third-quarter dividend, payable September 25, 2024, to shareholders of record on September 10, 2024. In the quarter, the company repurchased 0.9 million shares for $462 million and had about $3.2 billion of repurchase authorization remaining. Parent-company cash and investments were about $2.4 billion, so the company's ability to sustain buybacks and dividends depends on improving cash flow.

04—Continue

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