Mid Atlantic Medical reports doubled profits

April 09, 1994|By Ian Johnson | Ian Johnson,Sun Staff Writer

In an unexpected announcement that sent its stock soaring, Mid Atlantic Medical Services Inc. reported yesterday that it had doubled its profits for the first three months of this year, a result of a drive last year to add new members to its health maintenance organizations while cutting unprofitable members.

The Rockville-based provider of managed care made the announcement 10 days before its scheduled release of financial data for the first quarter.

The company said it made the information public because the figures diverged so radically from Wall Street's expectations, spokesman Michael Savage said.

Indeed, Wall Street reacted with unmitigated glee at the figures, with the company's stock rocketing up $5.25, to $49.125.

The excitement was caused by a surge in profits, which more than doubled, to between 52 and 57 cents a share, from 21 cents a share during the same three month-period in 1993. Wall Street had expected the company to earn 32 cents a share, according to Zacks Investment Research.

Revenue also increased, rising 10 percent, to $177 million, from $160.8 million for the same quarter in 1993.

The company will release exact figures on April 18, Mr. Savage said.

Jeffrey Saut, director of research at Ferris Baker Watts Inc., attributed some of the improvement to the company's strong senior management.

"I'm not sure they'll be able to maintain that fevered pitch of growth, but so far they've managed to do it," he said.

At the same time, Mid Atlantic has added new members, growing to 1.05 million by the end of the quarter, compared to 950,000 on December 31, 1993, an increase of 10.5 percent.

In a statement, Mid Atlantic Chief Executive Officer George T. Jochum said the growth in members and "lower-than-anticipated medical utilization" had combined for the high profits.

Mr. Savage said the lower medical costs that Mid Atlantic had to pay stemmed from a move by the company to cut employee groups that are not profitable.

"Those employee groups that were unprofitable or only marginally profitable, we tried to bring up to profitability, so we weren't losing money on them. If they still weren't or were unwilling to accept the necessary rate increases, we dropped them," Mr. Savage said.

George F. Shipp, an analyst at Scott & Stringfellow Inc. in Norfolk, Va., said that while Mid Atlantic's performance has been strong, he still does not recommend buying the company's stock. It has already been one of the top stock performers in the managed health care field, he said, and may be overvalued.

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