WellPoint Reports Strong 1Q Earnings
WellPoint Inc. (WLP) reported first-quarter 2013 adjusted income of $2.94 per share, beating the Zacks Consensus Estimate of $2.37. Adjusted income also surpassed the year-ago earnings of $2.34 per share by 25.6%.
Including net investment losses of 5 cents per share, WellPoint posted net income of $885.2 million or $2.89 per share in the reported quarter, compared with $856.5 million or $2.53 per share in the first quarter of 2012. The year-ago quarter included some non-recurring items of 19 cents per share.
Operating revenues of WellPoint for the reported quarter were $17.5 billion, up 15.8% from the year-ago quarter level. Revenues, however, lagged the Zacks Consensus Estimate of $18.0 billion. The increase in revenues resulted from the acquisition of Amerigroup, partly offset by the decline in fully insured Local Group and Senior membership.
WellPoint’s premium revenues increased 16.2% year over year and other revenues surged 658.5%, offset by a 0.6% decline in administrative fees. Meanwhile, total expenses increased 16.3% to $16.4 billion.
Medical enrollment of WellPoint improved 6.3% to 35.8 million as of Mar 31, 2013 from 33.7 million as of Mar 31, 2012. The increase resulted from membership hike in the State Sponsored businesses attributable to the Amerigroup acquisition. The improvement was partially offset by the membership fall of 0.43 million in the Commercial business.
WellPoint posted a benefit expense ratio (benefit expenses as a percentage of premium revenue) of 83.7% in the reported quarter, surpassing 83.3% in the first quarter of 2012. The increase was due to the high benefit expense ratio of Amerigroup, which offset the lower benefit expense ratio in the Local Group business,
Segment Results
Commercial Business: Operating revenues slipped 1.3% year over year to $8.40 billion in the reported quarter. Operating gains in the segment, however, increased 11.7% year over year to $1.11 billion in the quarter, primarily due to lower-than-expected medical costs in the Local Group business.
Consumer Business: Operating revenues climbed 51.5% year over year to $7.20 billion in the quarter under review. Operating gains in the segment increased 13.7% to $247.5 million in the reported quarter from $217.7 million in the year-ago quarter. The increase was due to the Amerigroup acquisition, partly offset by operating margin decline in the Individual business and the spreading out of the CareMore Medicare Advantage model.
Other: Operating revenues in the quarter under review came in at $1.95 billion, up 3.1% year over year. Operating gains in this segment amounted to $12.6 million, compared with $3.1 million in the year-ago quarter. The increase resulted from the decline in the corporate and other general and administrative expenses in the quarter under review.
Financial Update
WellPoint exited the quarter with cash and cash equivalents of $1.67 billion, compared with $2.48 billion as of Dec 31, 2012. Operating cash flow in the first quarter of 2013 amounted to $956.9 million.
Long-term debt declined to $14.0 billion as of Mar 31, 2013, from $14.2 billion as of Dec 31, 2012. Shareholder equity inched up to $24.3 billion from $23.8 billion, while total assets increased to $59.41 billion from $58.96 billion at the end of 2012.
Share Repurchase
WellPoint repurchased 5.5 million shares for $340.2 million in the reported quarter. As of Mar 31, 2013, the company had approximately $1.5 billion worth of authorization remaining under its share repurchase program.
Dividend Update
During the reported quarter, WellPoint paid a quarterly cash dividend of 37.5 cents per share. This resulted in cash distribution of $113.4 million.
Outlook for 2013
WellPoint expects adjusted net income of $7.75 per share in 2013. Moreover, including net investment losses of 5 cents per share, net income is expected to come above $7.80 per share. Both these figures include integration costs related to the Amerigroup acquisition.
Furthermore, operating revenues are expected to range between $71.0 billion and $73.0 billion. Year-end medical enrollment is expected between 35.3–35.5 million.
Meanwhile, operating cash flow is projected to be above $2.7 billion. In addition, WellPoint expects SG&A expense ratio to be approximately 13%–14%, while the guidance for the benefit expense ratio stands at 86.0%, plus or minus 0.5%.
Results at Other Healthcare Providers
UnitedHealth Group Inc. (UNH) reported first-quarter 2013 earnings of $1.16 per share, in line with the Zacks Consensus Estimate. Earnings, however, declined 11.4% on a year-over-year basis.
Other peers such as CIGNA Corp. (CI) and Humana Inc. (HUM) are expected to release their first-quarter earnings shortly.
Zacks Rank
Currently, WellPoint carries a Zacks Rank #3 (Hold).
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