WellPoint Tops the Street in Q4 Earnings, Provides Modest Outlook for 2013

Andrew Klips |

Early Wednesday morning, WellPoint, Inc. (WLP) reported a 38 percent increase in net profits during the fourth quarter, topping analyst predictions, aided in part by an increase in membership and the acquisition on Amerigroup Corp. last month.

The Indianapolis, Indiana-based health benefits provider reported that it earned $464.2 million, or $1.51 per share in the latest fourth quarter, compared to $335.3 million, or 96 cents per share in the fourth quarter of 2011.  The figure was boosted by a favorable income tax settlement and net investment gains that were partially offset by acquisition related expenses.  Excluding one-time items, earnings totaled $1.03 per share, compared to 99 cents per share the year earlier, a 4 percent increase.

Operating revenue nudged higher by 0.6 percent, or $95.8 million, to $15.27 billion during Q4 2012.  The increase included collective revenue of approximately $316.8 million related to the Amerigroup and 1-800 CONTACTS acquisitions.

Wall Street was expecting WellPoint to report earnings of 95 cents per share and revenue of $15.28 billion.

“Our fourth quarter results were stronger than originally expected, reflecting improved operating performance, solid expense management and improving execution in our core operations,” said John Cannon, interim president and chief executive officer at WellPoint.

At the end of 2012, medical enrollment totaled 36.1 million members, an increase of about 1.9 million members, or 5.5 percent, from 34.3 million at the end of 2011. The acquisition of Amerigroup chipped-in nearly 2.7 million members to the 2012 total.

The company closed its $4.46 billion acquisition of Amerigroup in December, forming the nation’s largest Medicaid insurer.

7.6 percent gains in its smaller consumer business to $4.97 billion in the latest quarter helped offset declines in revenue from its commercial business, which fell 2.8 percent to $8.3 billion.

For the complete 2012 year, net income equaled approximately $2.7 billion, or $8.18 per share, compared to approximately $2.6 billion, or $7.25 per share, in all of 2011.  Excluding one-time items, adjusted net income was $7.56 per share for the full year of 2012, an increase of 8.0 percent compared with adjusted net income of $7.00 per share in 2011.

Looking ahead, WellPoint said that it expects net income of at least $7.60 per share, including costs related to the Amerigroup acquisition, and operating revenue between $71.5 billion and $73 billion.  Analysts were projecting revenue of $72.46 billion and earnings of $7.98 per share.

WellPoint also said that it expects membership to drop to the range of 35.3 to 35.5 million this year.  Its benefit-expense ratio, which measures the portion of insurance premiums used for patient care, is expected to drop to around 86 percent.  In the fourth quarter of 2012, this ratio slipped to 87.3 percent from 87.6 percent a year earlier.

Gauging the outlook is tough to discern at this point as the company is keeping its forecast modest because of changes set to go into effect this year as part of the Affordable Care Act, including state and federal government health insurance being offered for next year and changes in insurance taxes.

Shares of WLP have risen about 23 percent from 2012 lows in July to make up lost ground and have the stock price flat across the past 12 months.  Shares closed Tuesday trading at $63.80.

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