Molina’s Net Income Falls 58%

Struggling Molina Healthcare Inc. reported Thursday that profit for the third quarter fell 58% because of an unforeseen increase in medical costs.

Still, in what was seen as a positive sign, the Long Beach-based health maintenance organization raised its earnings estimate for the year. After the earnings announcement, Molina shares rose 6.5% to $23.54 in after-hours trading.

The profit decline came on the heels of a loss in the second quarter. In late July, Molina warned investors that it would report weaker-than-expected results during the third quarter and cut its earnings forecast for 2005 by 70%, causing its shares, which had been trading around $45, to plummet 43% in one day.

Molina -- one of the nation’s largest HMOs specializing in contracts with Medicaid, known as Medi-Cal in California -- has blamed its weak performance this year on higher hospital costs because of new membership in areas with unfavorable hospital contracts. A higher number of catastrophic cases costing more than $100,000 also contributed.

Molina executives say they are working to renegotiate contracts with hospitals and doctors and to predict healthcare costs better.

“Although the third quarter was profitable, our results do not reflect the true potential of our company. It is clear we have work to do, and we are making progress,” said Chief Executive Dr. J. Mario Molina, son of the company founder, in a statement. “However, as our results for this quarter reflect, there are no quick fixes.”

For the quarter, Molina reported a profit of $6.8 million, or 24 cents a share, compared with $16.4 million, or 59 cents, a year earlier, beating analysts’ expectations of 18 cents a share. Revenue rose 29% to $425.7 million

For the year, Molina raised its earnings forecast to a range of 75 cents to 82 cents a share from its previous predictions of 73 cents to 80 cents a share.

Before the earnings announcement, Molina’s shares rose 45 cents to $22.10.