Sierra Health to suspend stock buybacks; stock slumps

Wednesday, Dec. 15, 1999 | 9:41 a.m.

Sierra Health Services Inc. of Las Vegas, a managed health-care company with 1.3 million customers, today said it's moving to preserve cash and will likely suspend its share buyback program.

The announcement caused Sierra shares to fall $1.06, or 12 percent, to $7.63 in midmorning trading. Before today, they had fallen 58 percent in the last 12 months.

Sierra also said it cut more than 150 jobs in Texas and will take a fourth-quarter charge of $26 million to $32 million because of problems in Texas and with its workers' compensation division.

Sierra said it is having trouble improving Texas operations it purchased from Kaiser Permanante last year. Sierra said the job cuts will save about $10 million annually, and it is receiving 10 percent higher premiums on new contracts.

"I am disappointed by the slow pace of our turnaround in the Texas market," said Dr. Anthony Marlon, chairman and chief executive officer. "The difficulties we encountered in achieving accurate enrollment counts, due to retroactivity from certain accounts associated with Kaiser, were exacerbated by our problems developing a core sales department to drive new business. Recently, however, we began significant progress in improving efficiencies that should strengthen our outlook as we move forward through the coming year."

The insurance company said it will have fourth-quarter earnings from operations of about 34 cents, which would match the average estimate of analysts polled by First Call Corp.

About half of the $26 million to $32 million charge is tied to the Texas problems. "The remaining charges are associated with contractual settlements and additional reserves relating to adverse developments on prior accident years for the company's workers' compensation business," Sierra said.

The company said it likely will suspend a share-repurchase plan while it negotiates a line of credit that likely will have a higher interest rate.

In March, Sierra added $20 million to a $25 million plan to buy back shares.