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Magellan's profits dip 8.3%, nicked by CDMI takeover costs


By Paul Demko
Posted: April 29, 2014 - 1:00 pm ET
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Magellan Health Services saw profits drop by 8.3% in the first quarter of 2014 as expenses associated with the purchase of CDMI and increased medical-care costs held down earnings. But those results were slightly better for the healthcare management company than stock analysts anticipated.

Magellan expects to close the $205 million deal for privately held CDMI on Wednesday. CDMI provides drug management services to more than 40 health plans.

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Magellan reported first-quarter revenue of $966.5 million, up 17.6% over the prior year. But net income was only $25.7 million, a reduction of 8.5% over the comparable period for 2013. The company’s profit margin was 2.7%, down from 3.4% during the first quarter of the previous year.

Magellan reported earnings per share of $0.92 for the quarter. That was down 8.9% from the first quarter of 2013. The company also reduced its earnings per share forecast for 2014 to $1.89 to $2.46, down from $2.00 to $2.56.

Medical-care costs topped $600 million during the first three months of the year. That was a 15.4% increase over the first quarter of 2013.

Managed-care revenue from government programs was $497.9 million for the quarter, an increase of 22%. Commercial sector managed-care revenue was $188.9 million, up marginally from the prior year.

Magellan also announced that it’s moving the company’s headquarters from Avon, Conn., to Scottsdale, Ariz., and that Chief Financial Officer Jon Rubin will be stepping down. Rubin will stay on for up to a year while the company seeks a replacement.

“We will manage this change in a way that minimizes disruption and distraction,” Barry Smith, Magellan’s chairman and CEO, said on a call with investors.

Wall Street’s initial reaction to the report was favorable, with the company’s stock price increasing more than 2% in early trading on Tuesday.

Follow Paul Demko on Twitter: @MHpdemko


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