WellCare Health Plans, Inc. (WCG) reported fourth-quarter 2012 earnings of $1.32 per share, in line with the Zacks Consensus Estimate but falling significantly from $2.15 earned in the year-ago quarter. Adjusted earnings of $57.6 million plunged almost 38% from $93.4 million recorded in the fourth quarter of 2011.
The decline resulted from higher medical benefit ratio (:MBR) in the Medicaid and Medicare Advantage segments, which more than offset higher premium revenue in both the segments, lower MBR in the prescription drugs plan segment and a decline in adjusted administrative expense ratio.
Including all non-recurring items, the company reported net income of $48.8 million or $1.11 per share, down from $85.1 million or $1.96 per share recorded in the prior-year quarter.
During the quarter under review, total revenue of WellCare grossed $1.99 billion, surging 24% from $1.60 billion in the year-ago quarter on the back of higher premiums and investment income. Top line also surpassed the Zacks Consensus Estimate of $1.89 billion.
Premium revenue during the quarter amounted to $2.0 billion, up 24% year over year due to improved premiums from all segments.
Total expenses for the fourth quarter amounted to $1.91 billion; increasing 29% from the prior-year quarter, primarily due to an increase in medical benefits expenses, selling general and administrative expenses, depreciation and amortization and Medicaid premium taxes, partially offset by a decline in interest expense.
The company’s adjusted administrative expense ratio plunged 150 basis points to 9.1% in the reported quarter. Total membership for the company increased 4% to about 2.7 million.
Medicaid Segment reported total premium revenue of $1.2 billion, up 22% over the prior-year quarter. However, its MBR deteriorated 490 basis points (bps) to 88.7% over the fourth quarter of 2011, primarily due to the Kentucky Medicaid program.
Medicare Advantage Segment reported total premium revenue of $571.9 million, up 49% over the prior-year quarter. MBR deteriorated by 710 bps to 86.9% over the fourth quarter of 2011.
Prescription Drug Plan Segment reported a 9% year-over-year decline in premium revenues to $212.0 million. MBR improved 20 bps to 66.9% due to lower pharmacy costs.
Full Year Results
For full-year 2012, WellCare’s core earnings came in at $215.6 million or $4.92 per share, missing the Zacks Consensus Estimate of $4.96. Results also lagged the prior-year earnings of $291.4 million or $6.73 per share.
WellCare reported net income of $184.7 million or $4.22 per share, declining from $264.2 million or $6.10 per share in 2011. Total revenue for 2012 was $7.41 billion, improving from $6.12 billion in 2011.
WellCare exited 2012 with cash and cash equivalents of $1.10 billion compared with $1.33 billion as of 2011-end. Total assets for the company were valued at $2.68 billion compared with $2.49 billion as of Dec 31, 2011.
Long-term debt obligation in the company’s books amounted to $120 million, declining from $135 million as on Dec 31, 2011. As of Dec 31, 2012, WellCare’s stockholders’ equity totaled $1.32 billion versus $1.12 billion as of 2011-end.
Outlook for 2013
WellCare announced its adjusted net income per share guidance of $4.50–$4.85 for 2013. The company expects premium revenue between $8.7 billion and $8.8 billion
The company expects administrative expense ratio in the band of 8.7%–8.9%.
WellCare’s Kentucky Medicaid Program Agreement was recently amended by the commonwealth of Kentucky, leading to a 7% hike in Medicaid premium rate from the state, in effect from Jan 1, 2013. Moreover, the state also preponed the 3% rate increase scheduled for Oct 2013 to Jul 1, 2013.
On Feb 12, 2013, WellCare expanded its senior secured credit agreement by $230 million. Additionally, the company raised $230 million under its term-loan facility.
Results at Other HMOs
Coventry Health Care Inc. (CVH) reported fourth-quarter 2012 operating earnings per share of 88 cents, which surpassed the Zacks Consensus Estimate of 67 cents as well as the prior-year earnings of 60 cents. Coventry reported net income of $119.3 million compared with $85.7 million in the prior-year quarter.
Another health maintenance organization (:HMO), WellPoint Inc. (WLP) reported fourth-quarter 2012 adjusted income of $1.03 per share, beating the Zacks Consensus Estimate of 95 cents. Adjusted income also surpassed the year-ago earnings of 99 cents per share by 4%.
UnitedHealth Group Inc. (UNH) reported fourth-quarter 2012 earnings of $1.20 per share, in line with the Zacks Consensus Estimate. Earnings, however, increased 2.6% on a year-over-year basis.
WellCare carries a Zacks Rank #4 (Sell).Read the Full Research Report on WLP
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