MHS profit meets forecast

Magellan Health earns $6.3 million, or 19 a share

February 09, 2000|By M. William Salganik | M. William Salganik,SUN STAFF

Magellan Health Services Inc., which became one of Maryland's largest companies last year when it moved to Columbia, yesterday reported first-quarter earnings of $6.3 million.

That was equivalent to 19 cents a share and in line with analysts' estimates.

That compares with net income of $4.2 million, or 13 cents a share, in the corresponding quarter a year ago, though those figures included a number of one-time charges involving integrating two large acquisitions and income from discontinued operations.

Without those factors, earnings in the quarter a year ago would have been $5.7 million, or 18 cents a share.

Revenue for the first quarter was $481.8 million, up 9 percent from $443.3 million in the comparable quarter a year ago.

Although earnings were nearly flat, the report represents "good news," said Eleanor Kerns, an analyst for Credit Suisse First Boston. "The company is repositioning itself, and that takes time."

Magellan, which specializes in managing mental health care, took the right step last year when it got out of operating mental hospitals, she said.

The company also helped itself by paying down debt and by diversifying beyond mental health to managing specialty medical care, she said.

Dr. Henry T. Harbin, Magellan's president and chief executive officer, said, "We really are pleased with the continuing strong performance" of the mental health business, which provided 87 percent of the company's revenue, and of National MENTOR, a division which provides community services such as therapeutic foster care and group home placements.

The specialty health division, which manages care for high-cost patients, "has us operating in a new market niche. We did not get a significant margin contribution, but we feel it has tremendous potential," Harbin said.

When the division completes an acquisition of a key rival in the next quarter, he said, coverage will increase from 3.5 million to 6 million patients and "should show improved margins later in the year."

MENTOR, Harbin said, could be sold as part of "a continuing effort to reduce leverage," although there is no current effort to market the division.

In the core mental health business -- where Magellan is paid by insurers or employers to manage mental health care -- Harbin said the number of people covered grew by a million to 67.5 million as of Dec. 31. The growth was accomplished by increases under existing contracts and by winning new contracts.

While there is no longer "the predatory pricing of two to four years ago," in which some companies bid below cost to win market share, he said mental health insurers have not been able to get the premium increases of HMOs -- some in the 10 percent range.

With more states requiring parity in mental health and physical health benefits, he projected that over the next few years, "We could see behavioral health spending increase 30 percent."

Magellan's stock closed yesterday at $7.25 a share, down 12.5 cents for the day.

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