Commercial health benefits company WellPoint Inc. (WLP) on Wednesday posted a decline in third-quarter profit, as medical enrollment continues to decline, hurt by recession and rise in unemployment. In addition, the health insurer updated its financial forecast for the full year.
Q3 Results
The Indianapolis, Indiana-based company's third-quarter net income was $730.2 million, down 11.0% from $820.7 million in the prior-year quarter. Per share earnings dropped 4.4% to $1.53 from $1.60 earned in the same quarter of last year.
On average, 19 analysts polled by Thomson Reuters expected the company to post earnings of $1.38 per share. Analysts' estimates typically exclude special items.
The company said its recent quarter results included net investment gains of $0.03 per share and an impairment charge of $0.28 per share for certain intangible assets, while the prior year included net investment losses of $562.6 million pre-tax, or $0.71 per share, an impairment charge related to certain intangible assets in the company's State Sponsored business, totaling $141.4 million pre-tax, or $0.17 per share, and income tax benefits of $460.8 million or $0.90 per share, resulting from the favorable resolution of certain federal and state tax matters.
Quarterly operating revenues edged down 0.7% to $15.2 billion from the previous year's $15.3 billion, primarily due to lower fully insured enrollment in 2009, including the company's withdrawal from certain State Sponsored programs. This was partially offset by premium rate increases for all medical lines of business and increased reimbursement in the Federal Employees Program or FEP.
Total revenues for the latest quarter were $15.4 billion, up 3.1% from $14.9 billion in the comparable quarter of the previous year. Fourteen Wall Street analysts had a consensus revenue estimate of $15.15 billion for the quarter.
Angela Braly, president and chief executive officer of WellPoint, said, "We are performing well as an organization in a difficult economic environment. Our third quarter results were better than we expected, driven mostly by improving results in our Consumer segment."
Business Segments
The company's Commercial Business, which includes the Local Group, National, UniCare, and Specialty Products lines of business, generated quarterly operating revenues of $9.31 billion, down 2.0% from $9.49 billion a year ago. Segment operating gain was $628.0 million, compared to $909.0 million last year, a decrease of 30.9%, reflecting higher overall administrative costs, a reduction in fully insured enrollment and an increase in the benefit expense ratio for Local Group business.
Consumer Business, which includes the Individual, Senior, and State Sponsored lines of business, reported operating revenues of $4.089 billion, a decline of 0.1%, compared to $4.092 billion in the prior-year quarter. Operating gain for the segment totaled $520.0 million, a jump of 115.2% from the prior-year's $241.6 million, driven primarily by improvements in the Senior business, resulting from higher risk score revenue and product portfolio changes that were implemented for 2009.
Other, which includes Comprehensive Health Solutions, FEP business, National Government Services, inter-segment sales and expense eliminations, and corporate expenses not allocated to the other reportable segments, witnessed operating revenue growth of 5.0% to $1.81 billion from $1.72 billion reported a year earlier. Other business' operating gain climbed 68.8% to $133.2 million from $78.9 million in the fiscal year 2008, led by improved results in the company's NextRx PBM operation.
Other Metrics
As at September 30, 2009, Medical enrollment totaled 33.9 million members, down 4.2% from 35.3 million at September 30, 2008. The decline in membership was most significant in the Local Group business, which experienced a 966,000-member reduction from the prior year, primarily due to lapses and in-group enrollment losses resulting from the recession and rise in unemployment.
Medical membership decreased 1.1% in the latest quarter. The decline in overall membership was in-line with the company's expectation for the quarter, with fully insured membership at September 30, 2009, slightly favorable to expectations and self-funded membership slightly unfavorable.
Year-To-Date Highlights
For the nine-month period, the company reported net income of $2.00 billion or $4.12 per share, compared to $2.16 billion or $4.09 per share in the year-ago period.
Total operating revenues dropped to $45.8 billion from $46.2 billion in the same period of last year. Total revenues for the nine months ended September 30, 2009 amounted to $45.98 billion, a decline of 0.4%, compared to $46.18 billion in the year-earlier period.
In The Cards For FY09
Looking ahead, the company currently projects fiscal 2009 earnings to range between $5.06 and $5.12 per share, including $0.52 per share of net investment losses incurred through the first nine months of 2009 and the impairment charge of $0.28 per share recorded during the third quarter. Earlier, the company had projected full-year earnings of $5.06 - $5.12 per share, including net investment losses of $0.54 per share.
Operating revenue is now expected to total about $60.9 billion, versus its prior guidance of $60.6 billion. Analysts are looking for earnings of $5.67 per share on revenues of $60.60 billion for the full year.
Additionally, WellPoint expects year-end medical enrollment to be about 33.6 million members and SG&A expense ratio to be about 15.7%. Operating cash flow is now expected to exceed $3.1 billion. The company now expects that underlying medical cost trends will be in the range of 9.0%, plus or minus 50 basis points, for full year 2009.
Braly said, "We remain confident in our outlook for the fourth quarter and have maintained our guidance for the full year of 2009, reflecting the impairment charge and continued utilization increases due to higher COBRA membership and elevated flu activity."
Currently, the company expects net growth of more than 400 thousand National members in January 2010, and expects continued success as "we position our company for 2010 and beyond," Braly added.
Peer Review
Among WellPoints' rivals, CIGNA Corp. (CI) will announce its third-quarter results before the market opens on November 5, with analysts looking for earnings of $1.03 per share on revenues of $4.63 billion. While releasing second-quarter figures, the company boosted its fiscal 2009 outlook, expecting adjusted income from operations in the range of $1.04 billion - $1.10 billion, or $3.80 - $4.00 per share, versus its prior forecast range of $1.02 billion - $1.08 billion, or about $3.70 - $3.90 per share. Also, the company currently projects 2009 adjusted income from operations for the Health Care segment to be in the range of $700 million - $760 million. For the year, medical membership is expected to decline by about 5% - 5.5%.
Another peer, Aetna Inc. (AET) is slated to issue its third-quarter results on October 29, with analysts projecting earnings of $0.66 per share on revenues of $8.68 billion. While releasing second-quarter numbers, Aetna revised its fiscal 2009 operating earnings forecast, currently expecting earnings in the range of $2.75 - $2.90 per share, versus its prior forecast range of $3.55 - $3.70 per share. Twenty Wall Street analysts have a consensus earnings estimate of $2.86 per share for the full year.
Yet another competitor, UnitedHealth Group, Inc. (UNH) posted higher profit for the third quarter, totaling $1.04 billion or $0.89 per share, compared to $920 million or $0.75 per share in the prior-year quarter. Total revenues grew 8% to $21.7 billion from $20.16 billion in the previous year.
Stock Quotes
WellPoint shares, which have been trading between $27.50 and $55.73 in the past 52 weeks, closed Tuesday's trading session at $46.70.
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