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When Good Health is Bad Business

Friday, February 8, 2008 - 12:55
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Dodged the flu this year? A lot of people have, and some companies aren’t too happy about it.

The CDC’s FluView map shows that this year’s influenza season has been a slow-starter. While the flu has picked up in recent weeks, sporadic reports of flu were the most common on the agency’s flu map during in December.

All this health has been a bummer for some companies’ bottom lines, to judge from earnings releases and transcripts of investor meetings and conference calls. Bear Stearns analyst Jason Gurda blamed weak patient volumes at two hospital chains, Lifepoint and Health Management Associates, to “virtually no flu season.”

Fewer flu patients mean lower profits at hospitals. David Dill, CFO at Lifepoint, told investors at a conference last month put on by financial advisers Stanford Group. “[T]here are cases when you have a strong flu season and the ancillary business is very profitable,” he said, such as when “an elderly person that shows up in the ICU and all of a sudden needs a [tracheostomy tube] to be put in, and that turns into higher acuity business for us. Or on the pediatric side, young kids coming into the hospital, that’s a nice margin for us, as well.”

It isn’t just hospitals, either. Procter & Gamble reported slower Vicks sales “due to the record mild cold and flu season,” and Kimberly-Clark said Kleenex sales were down 12% over last year, pushing North American consumer-tissue sales down 1% despite “solid growth” in bathroom tissue and paper towels.

CVS Caremark blamed light December sales in part on the “slowly developing flu season.” Rite Aid blamed a “weaker cough, cold and flu season than last year” in part for its decision to lower sales guidance, Chairwoman and CEO Mary Sammons told investors in a conference call in December. Walgreen CEO Jeffrey Rein told attendees at the company’s annual meeting last month that a “very, very mild flu season” presented the “strongest headwind” in the company’s December operations — and he invited them to “cough a few times, not in here, go to a movie theater, right, or on a bus. … I’m glad people are feeling better, but it impacts prescription sales.”

Some companies you might not expect wouldn’t mind a touch of the flu. Allstate CEO Tom Wilson told investors last month: “People get flu, they don’t drive, and you’d be surprised how much money we make when people don’t drive, and so they don’t get in accidents.”

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