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CENTENE CORP (CNC)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 printed an adjusted EPS of $0.50 (GAAP loss per share $(13.50) on a $6.7B non‑cash goodwill impairment), with a sequential HBR improvement and a raised FY25 adjusted EPS outlook to at least $2.00 from $1.75; EPS outperformed S&P Global consensus, while revenue (per SPGI definition) missed consensus .
  • Medicaid improved: HBR 93.4% (approx. 40 bps benefit from a $150M Florida CMS retro adjustment), and management now targets back‑half Medicaid HBR ~93.2% vs 93.5% prior, with Q4 HBR ~93% on 9/1 and 10/1 rate lifts; composite 2025 Medicaid rate now ~5.5% .
  • Marketplace remained on track but saw September utilization pressure; 2026 products have been repriced in states covering ~95% of members with mid‑30% average rate increases to restore margins, while management prudently holds additional Q4 medical cost cover given EAPTC uncertainty .
  • Medicare performed in line: MA advancing toward 2027 break-even; PDP largely contained by risk corridors and running ahead of initial margin assumptions; CMS 2026 STARs improved with ~60% of members ≥3.5 stars and ~20% in 4‑star plans .

What Went Well and What Went Wrong

  • What Went Well
    • Medicaid margin trajectory improved: Q3 Medicaid HBR 93.4% (150 bps sequential improvement), aided by a $150M Florida CMS retro (40 bps) and rate/policy wins; composite 2025 Medicaid rate now ~5.5% vs ~5% previously .
    • Raised FY25 adjusted EPS outlook to at least $2.00 (from $1.75), citing execution on Medicaid actions, SG&A leverage, stronger net investment income, and a temporary tax rate benefit .
    • Medicare steady: MA on path to 2027 break‑even; PDP within risk corridors improving visibility; STARs improved (60% ≥3.5 stars; ~20% at 4 stars) supporting future revenue stability .
  • What Went Wrong
    • Marketplace utilization rose in September, prompting an added $75M provision and retention of $125M prior cover for Q4 amid EAPTC uncertainty; 2025 remains slightly below break‑even .
    • Consolidated HBR rose YoY to 92.7% (from 89.2%) on Marketplace medical cost pressure, lower risk adjustment revenue, and PDP seasonality under IRA; Medicaid costs pressured by behavioral/home health and high‑cost drugs .
    • Large $6.7B non‑cash goodwill impairment drove GAAP loss and lifted debt‑to‑capital to 45.5%; while non‑operational, it elevates leverage optics until equity rebuilds .

Financial Results

MetricQ1 2025Q2 2025Q3 2025
Total Revenues ($USD Billions)$46.62 $48.74 $49.69
Premium & Service Revenues ($USD Billions)$42.49 $42.47 $44.90
GAAP Diluted EPS ($)$2.63 $(0.51) $(13.50)
Adjusted Diluted EPS ($)$2.90 $(0.16) $0.50
Health Benefits Ratio (HBR, %)87.5% 93.0% 92.7%
SG&A Expense Ratio (%)7.9% 7.1% 7.0%

Estimates comparison (S&P Global):

  • EPS (Primary EPS Consensus Mean): Q3 estimate −$0.16 vs actual $0.50 → beat by $0.66*
  • Revenue (Revenue Consensus Mean): Q3 estimate $47.83B vs actual $45.35B → miss by ~$2.49B (−5.2%)*
    Values retrieved from S&P Global. [GetEstimates]

Segment premium & service revenues ($USD Billions)

SegmentQ1 2025Q2 2025Q3 2025
Medicaid$22.30 $21.72 $23.17
Commercial$10.15 $10.07 $10.99
Medicare (MA, Supplement, PDP)$8.76 $9.45 $9.39
Other$1.28 $1.22 $1.34
Total Premium & Service$42.49 $42.47 $44.90

Key KPIs

KPIQ1 2025Q2 2025Q3 2025
Medicaid HBR (%)93.6% 94.9% 93.4%
Commercial HBR (%)75.0% 90.6% 89.9%
Medicare HBR (%)86.3% 90.9% 94.3%
Days in Claims Payable (days)49 47 48
Cash Flow from Ops ($B)$1.51 $1.79 $1.36
Debt to Capitalization (%)39.5% 39.0% 45.5%
Total At‑Risk Membership (000s)27,944 28,005 27,968
Marketplace Members (000s)5,626 5,863 5,828
Medicare PDP Members (000s)7,868 7,846 7,973

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted Diluted EPSFY 2025≥ $1.75 (July/Q2 call) ≥ $2.00 Raised
GAAP Diluted EPSFY 2025N/ALoss/share not to exceed $(12.85) New/Updated
Medicaid HBR (Back Half)2H 2025~93.5% ~93.2% trajectory Lower HBR (better)
Medicaid HBRQ4 2025N/A~93% New specificity
Adjusted Effective Tax RateFY 2025~20–21% (unchanged) ~20–21% (unchanged) Maintained

Notes: Management plans to issue detailed FY26 guidance on the Q4 call; early building blocks indicate meaningful 2026 margin improvement in Marketplace and Medicare, with Medicaid profitability broadly consistent with FY25 as a prudent base .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Marketplace morbidity, risk adjustment, EAPTCQ2: $2.4B full‑year headwind; added $200M 2H utilization provision; repricing underway for 2026 .Sept utilization uptick; retain $125M and add $75M Q4 cover; 95% of 2026 membership repriced with mid‑30% avg rate increases; expect market contraction high‑teens to mid‑30s; outcome hinges on EAPTCs .Stabilizing via repricing; near‑term volatility persists.
Medicaid cost drivers & ratesQ2: HBR 94.9% on behavioral health, home health, high‑cost drugs; composite rate ~5% (7/1,9/1 better than expected) .Medicaid HBR 93.4% with $150M Florida retro (~40 bps); composite rate now ~5.5%; back‑half HBR trajectory ~93.2%; Q4 ~93% .Sequential improvement; policy/rate progress continues.
Medicare (MA/PDP) & STARsQ2: PDP outperformance; MA on path to 2027 break‑even; cautious on specialty trend .Medicare HBR 94.3% reflects MA patterns and PDP inverted seasonality; PDP within risk corridors; 2026 STARs improved (60% ≥3.5; ~20% 4‑star) supporting 2027 goals .On plan; quality trajectory supportive.
SG&A & investment incomeQ1: SG&A 7.9%; Q2: 7.1% with leverage .SG&A 7.0% with continued leverage; Q3 investment income strong on one‑offs; may harvest losses in Q4 to improve 2026 yield .Operating discipline; portfolio optimization ahead.
Regulatory/macro (OB‑3, work requirements)Q2: OB‑3 as a new policy floor; multi‑year implementation plan .Work requirements likely 2027+; minimal impact expected in 2026; program integrity measures a continuing driver of risk pool shifts .Policy risk manageable with lead time.
Fraud, Waste & Abuse (FWA) actionsQ2: Enterprise task forces; state policy advocacy .NY: terminated suspect behavioral provider; states reversing GLP‑1 weight‑loss coverage and carving out high‑cost drugs; ABA policy precision improved .Execution gaining traction.

Management Commentary

  • “We are driving significant progress against the milestones we provided to investors in July, yielding a better than expected adjusted EPS result in the period… With three quarters of the year complete, we are increasing our adjusted EPS forecast to at least $2” — CEO Sarah London .
  • “We received a net $150 million positive revenue adjustment in Q3 for the Florida CMS program… about $90 million was retro to Q1 and Q2… worth about 40 basis points on the Q3 Medicaid HBR” — CFO Drew Asher .
  • “We… reprice our products for 2026 in states that cover 95% of our current membership… rates… averaged in the mid‑30%” — CEO Sarah London .
  • “PDP… is now largely contained by risk corridors, providing for increased visibility into the fourth quarter” — CEO Sarah London .
  • “We may harvest some unrealized losses [in Q4] as we think about reinvesting in higher yielding instruments for 2026 and beyond” — CFO Drew Asher .

Q&A Highlights

  • Marketplace outlook: Management added $75M Q4 provision (and kept $125M from H2 cover) after a September utilization uptick; expects high‑teens to mid‑30s market contraction depending on EAPTCs/program integrity; 2026 rates filed reflect baseline morbidity, trend, program integrity, and EAPTC expiry assumptions .
  • Member engagement if EAPTCs extended: Company prepared for multi‑layer enrollment, special enrollment periods, and targeted outreach to recapture members; still expects some “breakage” even if policy relief occurs mid‑cycle .
  • Medicaid: Work requirements likely 2027+; limited 2026 impact; 2026 Medicaid profitability guided as “consistent” with FY25 (prudent posture) but management aims to do better amid ongoing FWA, network and policy interventions .
  • Florida cadence: Q3 Medicaid HBR baseline excluding the retro implies a ~94.0% jump‑off; 9/1 and 10/1 rate cohorts (mid‑5% on average; Florida slightly above) support a sequential HBR lift into Q4 (~93%) .
  • State rate setting: Dialogue remains constructive with faster use of current data; budget constraints create opportunities to optimize program design and carve‑ins/carve‑outs for affordability .

Estimates Context

  • EPS vs S&P Global consensus: CNC delivered $0.50 adjusted EPS vs −$0.16 consensus in Q3 2025, a significant beat largely aided by a temporarily low adjusted tax rate (~$0.10 benefit), stronger investment income, and Medicaid retro revenue (Florida CMS) offsetting Marketplace pressure* .
  • Revenue vs S&P Global consensus: SPGI “Revenue” missed ($45.35B actual vs $47.83B estimate), reflecting pressure on revenue ex premium taxes and Marketplace risk adjustment dynamics; total GAAP revenues were $49.69B* .
    Values retrieved from S&P Global. [GetEstimates]

Key Takeaways for Investors

  • Earnings quality: Adjusted EPS beat driven by Medicaid rate/retro benefits, SG&A leverage, investment income, and a temporarily low tax rate; GAAP loss from non‑cash goodwill write‑down has no cash/statutory impact but raised debt‑to‑cap optics (45.5%) .
  • Medicaid improving: Sequential HBR progress with concrete state actions (Florida CMS retro and prospective rate, NY FWA enforcement); back‑half HBR trajectory trimmed to ~93.2% (better), Q4 ~93% .
  • Marketplace risk being repriced: 2026 rates (mid‑30% average) across ~95% of membership target margin expansion; near‑term utilization volatility and EAPTC outcomes remain the key swing factors for Q4 and open enrollment .
  • Medicare on plan: MA trending toward 2027 break‑even with improving STARs; PDP visibility supported by risk corridors though 2026 outperformance will be moderated in initial guidance .
  • 2025 outlook raised; 2026 setup: FY25 adjusted EPS now at least $2.00; management intends to grow EPS in 2026 with Marketplace and MA margin improvement and Medicaid stability as baseline; detailed FY26 guidance due with Q4 .
  • Trading implications: Policy headlines (EAPTCs), open enrollment utilization, and Medicaid rate/policy wins are near‑term catalysts; favor monitoring DCP stability (48 days), cash generation ($1.36B in Q3), and any Q4 investment portfolio repositioning .
Citations:
Press release & 8-K Q3 2025: **[1071739_0001071739-25-000185_a20251029ex991pressrelease.htm:0]** **[1071739_0001071739-25-000185_a20251029ex991pressrelease.htm:2]** **[1071739_0001071739-25-000185_a20251029ex991pressrelease.htm:3]** **[1071739_0001071739-25-000185_a20251029ex991pressrelease.htm:12]** **[1071739_0001071739-25-000185_a20251029ex991pressrelease.htm:13]** **[1071739_0001071739-25-000185_a20251029ex991pressrelease.htm:15]** **[1071739_0001071739-25-000185_a20251029ex991pressrelease.htm:16]** **[1071739_0001071739-25-000185_a20251029ex991pressrelease.htm:17]**
Earnings call Q3 2025: **[0001071739_2211491_1]** **[0001071739_2211491_2]** **[0001071739_2211491_3]** **[0001071739_2211491_4]** **[0001071739_2211491_5]** **[0001071739_2211491_6]** **[0001071739_2211491_7]** **[0001071739_2211491_9]** **[0001071739_2211491_11]** **[0001071739_2211491_12]** **[0001071739_2211491_13]** **[0001071739_2211491_15]** **[0001071739_2211491_16]** **[0001071739_2211491_19]** **[0001071739_2211491_20]**
Press release duplicate: **[1071739_20251029CG09207:0]**–**[1071739_20251029CG09207:16]**
Prior quarters (trend): Q2 2025 8-K **[1071739_0001071739-25-000151_a20250725ex991pressrelease.htm:0]**–**[1071739_0001071739-25-000151_a20250725ex991pressrelease.htm:17]**; Q1 2025 8-K **[1071739_0001071739-25-000087_a20250425ex991pressrelease.htm:0]**–**[1071739_0001071739-25-000087_a20250425ex991pressrelease.htm:17]**
Estimates (S&P Global): [GetEstimates]