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CENTENE CORP (CNC)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 deteriorated sharply: adjusted diluted EPS was a loss of $0.16 and GAAP diluted loss per share was $0.51, driven primarily by a large shortfall in Marketplace risk adjustment revenue; total revenues were $48.742B and premium/service revenues were $42.467B .
  • A significant miss vs Street: adjusted EPS of -$0.16 vs S&P Global consensus +$0.21*, revenue $42.467B vs $44.197B*, and EBITDA of -$97M vs +$91M*; management reduced FY25 adjusted EPS outlook to ~$1.75 (from >$7.25) and raised FY25 premium/service revenues to ~$172B .
  • Medicaid HBR spiked to 94.9% (Q2 total HBR 93.0%), with pressures in behavioral health (ABA), home health (HCBS), and high-cost drugs; Marketplace utilization elevated and market morbidity shifted materially (up to 16–17% YoY in some states) .
  • Stock reaction was negative: shares fell about 10% in pre-market trading on July 25; litigation and multiple shareholder notices followed the guidance withdrawal and Q2 results .

What Went Well and What Went Wrong

What Went Well

  • PDP outperformed expectations in the period and is contributing ~$700M pre-tax favorability for the Medicare segment vs prior forecast; MA is tracking slightly better than planned and on a path to break-even in 2027 .
  • SG&A leverage from higher revenues and PDP growth reduced the SG&A ratio to 7.1% (vs 8.0% in Q2 2024); adjusted SG&A was also 7.1% .
  • Operating cash flow was strong at $1.785B, aided by improved pharmacy rebate remittance timing .

Management quote: “We fully expect to deliver margin improvement in our three core lines of business in 2026… and are making excellent progress against our goal to reprice 100% of the Marketplace book.” — Sarah London, CEO .

What Went Wrong

  • Marketplace underpriced amid a significant morbidity shift; Q2 experienced ~$1.2B pre-tax drag and full-year Marketplace headwind now estimated at ~$2.4B, plus an added $200M provision for back-half utilization .
  • Medicaid HBR rose to 94.9%, driven by ABA behavioral health, home health/HCBS (notably New York), and high-cost drugs; Florida CMS ABA transition with inadequate rates and continuity-of-care constraints exacerbated costs until June 1 .
  • Overall HBR worsened to 93.0% (from 87.6% YoY), with elevated Marketplace utilization and increased Medicare MA premium deficiency reserve contributing .

Financial Results

Headline Financials vs Prior Periods

MetricQ4 2024Q1 2025Q2 2025
Total Revenues ($USD Billions)$40.805 $46.620 $48.742
Premium & Service Revenues ($USD Billions)$36.296 $42.489 $42.467
Health Benefits Ratio (HBR)89.6% 87.5% 93.0%
SG&A Expense Ratio8.9% 7.9% 7.1%
GAAP Diluted EPS ($)$0.56 $2.63 -$0.51
Adjusted Diluted EPS ($, non-GAAP)$0.80 $2.90 -$0.16
Cash Flow from Operations ($USD Billions)-$0.587 $1.510 $1.785

Results vs Wall Street Consensus (S&P Global)

MetricQ2 2025 ConsensusQ2 2025 Actual
Adjusted/Primary EPS ($)$0.21*-$0.16
Revenue ($USD Billions)$44.197*$42.467
EBITDA ($USD Millions)$91.2*-$97

Note: * Values retrieved from S&P Global.

Segment Revenue Trend ($USD Millions)

SegmentQ4 2024Q1 2025Q2 2025
Medicaid$20,825 $22,299 $21,723
Commercial$8,723 $10,149 $10,070
Medicare$5,476 $8,759 $9,450
Other$1,272 $1,282 $1,224

YoY in Q2 2025: Medicaid +7%, Commercial +18%, Medicare +58%, Other +1% .

KPIs and Operating Ratios

KPIQ4 2024Q1 2025Q2 2025
HBR by Product – Medicaid93.4% 93.6% 94.9%
HBR by Product – Commercial81.8% 75.0% 90.6%
HBR by Product – Medicare86.7% 86.3% 90.9%
Days in Claims Payable (DCP)53 49 47
Total Debt ($USD Billions)$18.423 $18.308 $17.552
Cash, Investments & Restricted Deposits ($USD Billions)$35.504 $36.964 $37.489

Membership Snapshot (At-Risk)

Line of BusinessQ4 2024Q1 2025Q2 2025
Marketplace4,382,100 5,626,000 5,862,800
Medicaid (Total)13,003,500 12,958,800 12,819,700
Medicare PDP6,925,700 7,867,800 7,845,800
Total At-Risk Membership25,853,600 27,944,000 28,004,900

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted Diluted EPSFY 2025>$7.25 ~$1.75 Lowered
GAAP Diluted EPSFY 2025>$6.19 Not reaffirmed (guidance withdrawn July 1) Withdrawn
Premium & Service RevenuesFY 2025$164–$166B ~$172B; Medicaid ~$89B, Commercial ~$41B, Medicare ~$37B, Other ~$5B Raised
Adjusted Tax RateFY 202522.0–23.0% (adj.) ~19% (adj.) Lowered
Medicaid HBR (back half)H2 2025N/A~93.5% assumption New metric
Share RepurchasesFY 2025Ongoing program (Q4 2024 repurchases) No further 2025 buybacks in forecast (opportunistic possible) Reduced
CapitalFY 2025Revolver $2B (FY24) Revolver $4B; 0 drawn at 6/30; net $300M capital to subs H2 Increased liquidity detail

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 and Q1 2025)Current Period (Q2 2025)Trend
Marketplace risk adjustment & program integrityQ4: CSR settlement favorably impacted HBR; strong Marketplace product positioning . Q1: strong Marketplace enrollment; guidance raised .Material market morbidity shift (up to 16–17%); underpricing; $2.4B full-year headwind; repricing filed in 17+ states; goal to reprice 100% .Deteriorated markedly; mitigation underway
Medicaid cost trend (ABA, HCBS, drugs)Q4: higher Medicaid acuity; HBR 93.4% . Q1: flu impacts and higher Medicaid HBR .HBR 94.9%; ABA pressure (Florida CMS), HCBS (NY), high-cost drugs; enterprise task forces; rate advocacy .Elevated but targeted correction
Medicare PDP & MA trajectoryQ4: MA Stars improved; PDP growth . Q1: program changes (IRA) shift PDP HBR progression .PDP outperforming; Medicare segment +$700M pre-tax vs prior forecast; MA slightly favorable; break-even in 2027 remains .Improving
Regulatory/policy (OB-3)Not present in Q4; Q1 forward-looking risks noted .OB-3 seen as a stable policy floor; multi-year implementation; impacts considered in pricing and Medicaid strategy .New framework; planning
AI/payment integrityNot a focus in Q4/Q1.Hospitals’ AI-driven coding intensity; payer AI in payment integrity to counteract .Emerging tool adoption

Management Commentary

  • “We are disappointed by our second quarter results… focused on continuing to adapt with the market to deliver meaningful value to our members, our stakeholders and our shareholders over the long term.” — Sarah M. London, CEO .
  • “There’s a real opportunity to make meaningful margin improvements… This is fixable. We look forward to demonstrating improvements ahead.” — Drew Asher, CFO .
  • “We fully expect to deliver margin improvement in our three core lines of business in 2026… armed with strong rates and operating discipline.” — Sarah London .

Q&A Highlights

  • Capital & liquidity: Net ~$300M capital expected into subsidiaries in H2; $4B undrawn revolver; debt-to-cap covenant at 60% with current ~39% .
  • ACA pricing/margins: Repricing for 2026 targeting profitability; margin-over-membership emphasis; approval process expected in August .
  • Medicaid trajectory: Back-half HBR assumption ~93.5%; concentrated fixes in Florida (ABA) and New York (HCBS), plus October 1 rate updates and pharmacy management returning in one state .
  • PDP margin: Above 1% budget margin; risk corridor (90% CMS/10% payer) provides earnings protection; receivable build visible in H2 cash flows .
  • Marketplace membership: Expect attrition to ~5.4M by year-end (FTR/PDM effects); continued market contraction in 2025 with program integrity measures influencing morbidity .

Estimates Context

  • Q2 2025 miss vs S&P Global consensus: adjusted/primary EPS -$0.16 vs +$0.21*, revenue $42.467B vs $44.197B*, EBITDA -$97M vs +$91M*; indicates substantial negative variance from expectations amid risk adjustment and utilization pressures .
  • Forward consensus shows negative EPS into Q3–Q4 before normalizing in 2026*, aligning with management’s focus on 2026 margin repair; Street estimates likely to be revised lower for FY25 EPS and Medicaid margin trajectories given updated company outlook .

Note: * Values retrieved from S&P Global.

Key Takeaways for Investors

  • Expect near-term estimate cuts: FY25 adjusted EPS reduced to ~$1.75; largest swing factor is Medicaid trend in H2 (every 10 bps HBR improvement adds ~$45M pre-tax) .
  • Marketplace remediation is the primary 2026 catalyst: repricing filed across most states; management targeting profitability in 2026 even amid program integrity headwinds and potential EAPTC expiration .
  • PDP is a partial offset: segment outperformance and risk corridor mechanics provide earnings stability and cash flow visibility through H2 .
  • Rate momentum in Medicaid: composite 2025 rate ~5% vs 2024; October 1 updates and policy changes (e.g., pharmacy management) support margin recovery over 12–18 months .
  • Balance sheet/liquidity solid: $37.5B cash/investments/restricted deposits; $4B revolver undrawn; total debt $17.6B; DCP at 47 days (structurally lower due to PDP mix) .
  • Stock overhangs: litigation and negative sentiment after the guidance withdrawal and Q2 miss may weigh on multiples near term; watch September/December morbidity data updates as potential inflection signals .
  • Trading implications: Near-term cautious stance until clarity on Medicaid H2 trend and ACA pricing approvals; catalysts include 10/1 rate decisions, weekly data, and 2026 pricing certification in August .