Humana Slashes Outlook Amid Higher Drug Costs

By DONNA KARDOS (Wall Street Journal)

Humana Inc. on Wednesday nearly halved its first-quarter earnings guidance and cut its full-year earnings projection on higher Medicare drug costs stemming from a cut in co-payment levels. The new guidance which sent shares of the managed-care provider plunging in premarket activity calls for first-quarter earnings of 44 cents to 46 cents a share, compared with the company's prior projection for 80 cents to 85 cents a share. Humana now expects 2008 earnings to come in between $4 and $4.25 a share, down from the prior forecast of $5.35 to $5.55. The company had given that full-year projection just a month ago when it raised a previous projection by five cents a share amid reporting a 57% rise in fourth-quarter net income.

The latest mean estimates of analysts polled by Thomson Financial were for per-share earnings of 84 cents in the first quarter and $5.50 in the full year. The news came a day after investors walloped managed-care stocks on a dramatic earnings warning by WellPoint Inc. Humana smashed through its 52-week low Tuesday as the stock closed down 24%. Shares fell to $39.02 in recent premarket trading Wednesday, levels last seen three years ago. While WellPoint's warnings was based on higher medical costs, Humana was hurt by drug costs. In a slide presentation accompanying a conference call by executives, Humana said it cut 2008 copays after overestimating the use of so-called Tier 3 drugs. That pushed member costs above the threshold called for by the Centers for Medicare and Medicaid Services and resulted in Humana lowering copays.

"In hindsight, we should have assumed that members would likely change their behavior and substitute lower tier drugs, rather than lowering our copays," Humana said in the presentation.

As a result, members' shares of drugs costs has become 26%, not the 33% target allowed. As a result, Humana is picking up an additional $160 million in drug costs. The lower copays also resulted in some higher-cost members transferring to Humana's enhanced plan, which saw member growth of 188,000 last year. The company much of growth was from previous members returning. The possibility of higher costs facing health insurers have added to other investor worries, leaving the group vulnerable. Wall Street also has grown worried about health plans' exposure to mortgage-backed securities in their investment portfolios. While the holdings apparently are largely investment grade and perform well, investor concerns are likely to linger until the broader credit markets stabilize, according to an analyst.

Top 3 Financial Reporting Tips

Bart Holemue – Financial Wizard and WFR Staff Writer

If there’s one thing I’ve learned after 27 years as a financial wizard it’s that you can never be too cautious about how your company’s pecuniary reports are digested by prospective investors. More significantly, when spotlighting the international aspect of this beast it becomes even more imperative to ensure the most helpful information is being displayed. This might not always be easy, especially when the readers typically are government employees and potential investors on a global scale! Here are 3 tips to writing reports that financial analysts want to read and invest in - regardless of locale.

Be Profitable! This might sound obvious to most business savvy individuals, but investors tend to choose entities which have more assets than liabilities. As you can imagine, showing a loss can be quite detrimental to future investment. Quite simply, if you feel you will be profitable in the future, make sure you account for that. The easiest way I’ve found is to add future sales to your accounts receivables while concurrently undervaluing your liabilities, for example: If you attend a business conference and you meet with 10 clients and expect $50,000 in new business from each of them in the next 3 months this formula would be calculated C*n=AR+aAR where C are your potential deals, n is the total spend on each deal, AR is accounts receivable, and aAR are actual accounts receivables. So in this case we have: 10 x $50,000 that’s half a million dollars! I know what you’re thinking…Bart, some will not get to the 50k mark quarterly, exactly some may do much, much, more!

Growth. Is your business growing and what exactly is growth? Growth might not be your current business. In fact, growth is a relative term. For example, if you take a market survey and only 1% of people have heard of your brand this is not wholly accurate. In fact, 100% of that percentage those people are familiar with the brand, and a certain percentage of their friends are also aware. Compounded, with the original percentage this total market cap could be well over 100%. Think about it, investors certainly will…

Finally, investors want what they think other investors want. This may be the most important element of all. I find the most effective method to do this is hold shareholder meetings and invite potential investors. The best way to locate current investors (who can help you encourage new investment) are agencies such as http://www.auditionagency.com/ or http://showbizltd.com/_sbl_pages/acting_agents.php. I’ve found for around $50,000 you can employ over 100 shareholders for nearly two hours. Simply invite twice as many potential investors and include testimonials from the “current” investors. Combined with a $5,000 outlay for a conference hall at your local hospitality establishment with food and beverages one could parlay $55,000 into almost a million in capital in a fraction of a day.

In all, there are many ways to encourage your financial reporting success. These are only three points out of a myriad of options. We will be holding a meeting at the Radisson in Minnesota in late April 08, please email me at bart@worldfinancialreport.com for details, we hope to see you there!

President Fails to Budge OPEC on Production

By JAD MOUAWAD (New York Times)

OPEC on Wednesday rebuffed calls from President Bush to increase oil output, instead citing “mismanagement” of the American economy as a major factor driving prices up. Record prices are suddenly creating the sharpest tensions in years between the oil cartel and the United States, the world’s largest oil consumer. Two days after the president called for more oil on the global market, OPEC members, meeting in Vienna, chose to leave their production levels unchanged, declaring that the market has plenty of oil already. The cartel’s president blamed financial speculators and American economic problems, which have helped lower the value of the dollar, for the high oil prices. After the meeting, oil prices settled above $104 a barrel, a record. President Bush, who said this week that it would be a mistake for the Organization of the Petroleum Exporting Countries not to raise production, was disappointed by the outcome of Wednesday’s meeting, according to the White House. It is the second time this year that OPEC had ignored public calls from the United States to increase supplies. In January, Mr. Bush traveled to Saudi Arabia and urged producers to open their taps. But the plea failed to sway OPEC. When the group met in February, it kept its production level unchanged.

The rally in oil prices on Wednesday was caused in part by tensions on the border between Venezuela, a major oil exporter, and Colombia, as well as by government data in the United States showing a drop in stockpiles of oil and some of the fuels made from it. Oil prices settled at a record of $104.52 a barrel on the New York Mercantile Exchange, a gain of $5. Prices, which have risen 73 percent during the last year, have settled above $100 a barrel for seven of the last 12 trading sessions.

While members of OPEC chose not to increase supplies, they were not entirely oblivious to the political and economic impact of $100 oil. Gasoline prices have been rising rapidly in the United States in recent weeks, hitting a nationwide average of $3.18 a gallon Wednesday. That is only a nickel below the record set last May. The sharp surge in oil prices in recent days has deterred the group from cutting its production, a move that some members like Algeria and Iran were seriously contemplating a few weeks ago.

With the United States economy slowing down, oil prices have risen as investors flee the stock market and seek refuge in hard assets like commodities. The fall in the value of the dollar gives OPEC an incentive to keep prices high. Since oil is sold in dollars, petroleum producers see the value of their exports decline any time the dollar drops. The dollar has lost 17 percent of its value against the euro in the last year. On Wednesday, it fell to a new low against the euro, trading at $1.53.

“OPEC is angry that President Bush wants them to increase production while the dollar is sinking and the administration is doing nothing about that,” said Fadel Gheit, an oil analyst at Oppenheimer & Company in New York. “It’s really not surprising that they have ignored him.”

The falling dollar has complex economic effects in the United States, not all of them bad. The drop is helping to fuel a surge of American exports, one of the few bright spots in a struggling economy. Higher energy prices, which have been rising relentlessly for nearly a decade, are creating tensions between consuming nations and producers around the world. Oil-rich countries like Russia and Venezuela have become more demanding in their dealings with foreign oil companies, often restricting access to prime drilling locations. In the United States, rising energy costs are weighing on an economy that is struggling with a housing slump and a credit crisis. As a sign of growing impatience, Mr. Bush criticized OPEC this week for not increasing supplies.

“I think it’s a mistake to have your biggest customer’s economy to slow down” because of high energy prices, he said. Most energy analysts dismissed the call for additional supplies as political rhetoric. In comments on Wednesday, the president said the United States needs to reduce consumption.

“America’s got to change its habits; we’ve got to get off oil,” Mr. Bush said at a conference on renewable fuels in Washington. “Until we change our habits, there’s going to be more dependency on oil.” Mr. Bush’s earlier comments echo remarks he made more than eight years ago, while running for president. Then, the onetime Texas oilman said that if prices rose, he would not hesitate to call OPEC producers and persuade them to increase supplies.

“I would work with our friends in OPEC to convince them to open up the spigot, to increase the supply,” Mr. Bush said at the time. “Use the capital that my administration will earn, with the Kuwaitis or the Saudis, and convince them to open up the spigot.” But OPEC members are proving difficult to sway. Chakib Khelil, Algeria’s oil minister and OPEC’s president this year, said on Wednesday that the high price of oil was not because of a lack of supply, but instead resulted from the “mismanagement of the U.S. economy” that has helped send the dollar tumbling.

“If the prices are high, definitely they are not due to a lack of crude,” Mr. Khelil said in Vienna. “They are due to what’s happening in the U.S.” He added: “There is sufficient supply. There’s plenty of oil there.”

Most energy analysts agree there is no shortage of oil. Commercial oil inventories are high, and refiners are not lacking oil.

“The market continues to be well supplied,” Rex W. Tillerson, the chairman and chief executive of Exxon Mobil, said at a conference in New York. “There has been no interruption of supplies.” Still, OPEC recognizes the threat posed by a slowing economy on its business. In its final statement, the group said that the United States economic slowdown and housing crisis could damp global oil demand this year.

Ali al-Naimi, Saudi Arabia’s oil minister, said there was no need to increase supplies by “even one barrel of oil.” But he stressed that Saudi Arabia, the world’s top exporter, would keep oil markets well supplied. As a sign of how seriously it sees its role, Mr. Naimi told reporters that the kingdom was pumping 9.2 million barrels, “day in, day out,” or roughly 300,000 barrels a day above its formal OPEC target. The oil cartel, which is next scheduled to meet in September, indicated it might call for an emergency meeting earlier depending on “market conditions.” OPEC producers account for about 40 percent of the world’s oil exports. Some of its members, like Saudi Arabia and Kuwait, are United States allies; others, like Iran and Venezuela, are political foes.

“OPEC’s biggest fear is that this is a bubble and that prices will drop by $30 a barrel,” said Roger Diwan, a managing director at PFC Energy, who was in Vienna to attend the meeting. “So they keep tightening supplies and prices keep going up.”

OPEC hints output will not change

VIENNA, Austria

By WILLIAM J. KOLE (Business Week)

OPEC's president urged the cartel Wednesday to be vigilant with oil prices hovering above $100 per barrel, but said despite a turbulent world economy, the global market for crude was stable. "The growing sense of despondency about the future global economic outlook is generating much uncertainty in energy circles," Chakib Khelil said in an opening address to oil ministers gathered in Vienna. Khelil said, however, that crude stocks were well within their five-year average and the 13-nation group would likely leave unchanged its global output of about 32 million barrels a day. Khelil cautioned that the Organization of Petroleum Exporting Countries would have to maintain "constant vigilance" as the weak dollar, the U.S. subprime mortgage crisis and political tensions in the Middle East rattle markets worldwide. While it is common for OPEC to say it must remain vigilant, oil ministers suggested this week that the cartel would keep even closer tabs on prices and supply, and might authorize Khelil to take quick action in the next six weeks or so if he deems it necessary. "There have been signs that the oil market is moving into a new phase," Khelil said, adding: "It should be characterized by stability and not volatility."

Saudi Arabia, OPEC's top producer and by far its most influential member, also said it saw no reason to change output targets -- despite record high prices and a rebuke Tuesday from President Bush. "Understand the consequences of high energy prices," Bush said after meeting with King Abdullah II of Jordan in the Oval Office. "I think it's a mistake to have your biggest customers' economies slowing down as a result of higher energy prices," he added. Japan, the U.S. and other major industrialized nations have urged OPEC -- which supplies about 40 percent of world demand for crude -- to bring more oil on the market and pull down prices, which reached an inflation-adjusted record of nearly $104 a barrel this week. OPEC is resisting, pointing to slackening demand in the second quarter and suggesting it would hold off to see what happens with supply and prices this spring. "Why do we need to take any new measure if the health of the market that we follow for our policies is sound?" the pan-Arab newspaper Al Hayat quoted Saudi Oil Minister Ali Naimi as saying. Naimi told reporters in Vienna that his country is pumping roughly 300,000 barrels a day over its quota and is selling every drop "day in, day out" -- an upbeat assessment. Analysts said they didn't expect any significant action Wednesday.

"In truth, OPEC's decision not to pump more oil is a reflection that supply is relatively good," said Anthony Sabino, a professor of business at St. John's University in New York. "What is driving oil prices up to the stratospheric level of over $100 per barrel is the U.S. economy, now undeniably in recession," he said. "It's not so much the price of oil is going up -- it's that the value of the U.S. dollar, sad to say, is slumping." Oil shot up a dramatic 19 percent last month as the falling dollar prompted speculators and other investors to shift cash to crude and other commodities as a hedge. Khelil said Wednesday that OPEC was not happy at the speculation rocking an already jittery market, saying the influence has "not been welcomed by this organization." Key cartel members said this week that prices in the $85 to $90 per barrel range would be optimal. The 13 OPEC members are Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela. Iraq is the only member not subject to the cartel's output quotas.

Check Into Cash

By Greg Gortz - Featured Journalist and WFR Staff Writer

I like to consider myself a market-savy individual. I keep a watchful eye on the daily high and lows of the DOW, S&P, and of course NASDAQ. I even go as far as to follow the international market – as it seems to be eclipsing our own in terms of ROI at this given time. Even so – we still all make mistakes. I was discussing a particularly poor day with a co-worker of mine over drinks and we got to talking about contingency plans. If, in the event things continue to go south in the market, if the mortgage crisis continues, if I decide to make a few trades online, while slightly buzzed – what then? Well – to be honest – my co-worker and I really didn’t have a contingency plan. Things have been so good for so long and he and I are both so young, we just never had to think about it. So I did a little research on my own – with all the defaults on loans – what were people doing to save their homes? Where were they getting the equity? I found a great website that will offer the Cash advance that many home owners could really use. Maybe it was the night cap I was drinking while doing my research – maybe not – all I know is that my heart was a little warmer knowing that there are Cash advance websites like these out there that can help people who need it most.

Staples Net Income Falls 1% on Lower Retail Sales

By Heather Burke

March 4 (Bloomberg) -- Staples Inc., the world's largest office-supplies retailer, said fourth-quarter profit fell 1 percent on lower North American retail sales to small companies and consumers. Net income declined to $333.2 million, or 47 cents a share, from $336.5 million, or 46 cents, a year earlier, Staples said today in a statement. Profit met some analysts' estimates. Revenue for the three months ended Feb. 2 rose less than 1 percent to $5.32 billion. Staples cut its full-year forecast. Sales at U.S. and Canadian stores open at least a year dropped 6 percent. Office-supply retailers' sales slowed as customers concerned about a declining job market and the worst housing slump in a quarter century reduced purchases of copiers and desks. North American sales have also declined at smaller competitors such as Office Depot Inc. ``The environment is hitting everyone pretty hard,'' Walter Todd, who helps manage $800 million for Greenwood Capital Associates LLC in Greenwood, South Carolina, said yesterday in an interview. ``It's all macro-driven.'' The firm held 175,048 Staples shares as of Dec. 31. The retailer predicted a ``mid single-digit'' percentage increase in sales and ``high single-digit'' percentage growth in earnings per share for the year ending next Jan. 31. Staples said in November that it expects earnings per share this year to increase by a percentage in the ``low teens,'' with ``high single-digit'' sales growth.

Staples Stock

Staples, based in Framingham, Massachusetts, rose 24 cents, or 1.1 percent, to $22.49 yesterday in Nasdaq Stock Market composite trading. The stock lost 2.5 percent of its value this year through yesterday, compared with a 20 percent decline for Office Depot, the second-largest office-supplies retailer. ``In the context of a tough retail environment, we view Staples as relatively stable,'' Jack Murphy, an analyst at William Blair & Co. in Chicago, wrote yesterday in a research note. He rates Staples shares a ``buy.'' Analysts estimated fourth-quarter profit of 47 cents a share, the average projection of 16 analysts surveyed by Bloomberg. Eleven analysts, on average, estimated sales of $5.4 billion. In November, Staples forecast a ``low double-digit'' sales growth in the fourth quarter, with North American same-store sales unchanged or ``slightly negative.''

Corporate Express Bid

Staples last month made an unsolicited offer to buy Corporate Express NV, the world's biggest distributor of office supplies, for 1.33 billion euros ($2.02 billion). Amsterdam- based Corporate Express rejected the proposal, saying in a statement that it ``significantly'' undervalues the company. The takeover of Corporate Express, whose U.S. sales account for more than half its revenue, would bolster Staples' division that sells office supplies directly to companies. Last week Office Depot said fourth-quarter profit plunged 85 percent. Revenue declined both for the North American retail and direct sales divisions and North American same-store sales dropped 7 percent. Chief Executive Officer Steve Odland said U.S. and U.K. sales this quarter-to-date ``remain sluggish.'' The retailer operates more than 2,000 stores worldwide and sells office supplies in 22 countries.

With Software and an iBand, There’s No Need for Roadies

By ERIC A. TAUB (New York Times)

Many people who own the Apple iPhone speak with a sort of evangelical fervor about the product and the things it can do. E-mail! Music! Internet! Phone calls! It takes pictures!

Three art students from Austria have pushed the envelope a bit further, hacking into their iPhones — a big no-no, from Apple’s perspective — and loading them with music-playing software, which they have used to record songs. The videos they put on YouTube last month of what they call the first iBand have been drawing heavy traffic from technophiles and curiosity-seekers.

Their debut video, posted Feb. 17 and briefly the top-featured video on the site, is fairly rudimentary, from a musical perspective at least: in what the band describes as a “jam session,” one iPhone plays keyboard software, another plays a virtual guitar program and a Nintendo DS video game player plays percussion. The result is more songlike noise than melody.

But the outpouring of fascination was instant: the three were immediately deluged with requests for interviews, for copies of the song, and for information about the software and equipment they used. They acknowledge being somewhat startled, and said by e-mail that they were trying to figure out how to “deal with the situation.”

“We did our first video as an example of what could be done with the new music applications that are used, and to present our idea of an iBand,” wrote one of the band members, Seb, age 24, in response to e-mailed questions.

He said that the other band members were Marina, 26, and Roger, 25, and that they preferred not to give their surnames for privacy reasons. “We are all students of different fields of art, and share our interest in making music as well as modern media,” Seb wrote.

The original video had been viewed more than two million times as of Sunday, with more than 13,000 viewers leaving comments. Some people reviewed the music itself (“Needs some iDrums” “ALL of them have tempo problems”) but others just effused at the novelty (“OMG AWESOME.”).

Enough viewers found the video mesmerizing that the band was prompted to post a message on its Web site, at www.iband.at: “Some of you requested an MP3 version of the jam session. Unfortunately, the quality is too bad so we really can’t release it. I mean, honestly we still need some practice guys and we’re also still lacking a third iPhone. We’ll release an MP3 when we have a real song.”

That happened last Wednesday, when the students, who are from Vienna, put up their second video, this one more sophisticated. Using two iPhones and an iPod Touch (but no Nintendo), the trio, wearing fingerless gloves, plays an original composition called “Life Is Greater Than the Internet,” with vocals, in accented English, by Marina.

While the jam session took just an hour to record, the second opus required a lot more work, Seb said: the band spent two sleepless days and nights composing, practicing and recording the video, taking considerably more time to light the scene, set up the camera and mix the tracks.

The viewers who left comments were mostly impressed, though there was a smattering of snide quips (“What if you would have got a phone call???”).

Two more videos quickly followed, both showing an iPhone playing virtual drums. In one, the song is indeed interrupted by a phone call, on purpose.

“To use the iPhone as a musical instrument isn’t about getting a technically perfect song together,” Seb wrote. “It has very innovative input methods, but we could also use any sort of synthesizer and full band equipment; with today’s technology there are no limitations. But we think that exactly the limitation is what creates a spirit. Of all possible things you can do with a mobile phone, what could be more meaningful than to create music?”

The group’s goal, he said, was to work with other people who are developing music applications for the iPhone. The band is offering Marina’s first song free on its Web site and accepting donations from those who download it.

The band was first mentioned on Gizmodo.com, a Web site for technology fans, where the mechanics of the iBand’s work were of particular interest. To satisfy the tech crowd, the band named the software programs it loaded onto its hacked iPhones to make the music (they include PocketGuitar, Moo-Cow-Music Pianist and Moo-Cow-Music Drummer). And the Nintendo DS played an interactive music video game called Electroplankton.

“We have been thinking about forming a band that would only use iPhones as musical instruments for a long time now,” Seb wrote. “Time seemed just right to take the first step when a new piano application came out.”

The Moo-Cow-Music applications were developed by Mark Terry, 35, a Java developer in Southampton, England, who wrote the code simply “to be creative,” he said.

For those who cannot wait to try this at home, a word of caution: to install these programs on an iPhone or iPod Touch requires the user to “jailbreak” the devices, modifying the software to allow the phone to accept third-party applications. This voids the product’s warranty.

Although Apple discourages it, jailbreaking is quite simple; instructions are posted on various Web sites. “We don’t support unlocked iPhones,” an Apple spokeswoman said.

On Thursday, Apple will reveal its plans for an iPhone software developers’ kit, a road map outlining how third-party developers can create officially sanctioned applications. Mr. Terry is considering rewriting his programs to fit within those guidelines.

According to the iBand’s Web site, the three Viennese students are busy rehearsing and testing sound applications written for the iPhone.

“If you know of, or develop, any other apps please let us know, we’re very interested in collaborations,” the site says. “The development of instruments for the first hand-held device that lets us create pocket-sized music are important to establish this scene!”