WellPoint Inc. (WLP) reported fourth-quarter
2011 adjusted income of 99 cents per share, lagging the Zacks
Consensus Estimate of $1.11 per share. Results were also 25.6%
lower than $1.33 per share earned in the year-ago quarter. Adjusted
income declined 34% to $347.0 million from $524.7 million in the
fourth quarter of 2010.
Including net investment loss of $11.7 million or 3 cents per
share, the company reported net income of $335.3 million or 96
cents per share, compared with $548.8 million or $1.40 per share in
the third quarter of 2010. The year-ago quarter, however, included
net investment gains of $24.1 million or 7 cents per share.
Total operating revenues for the reported quarter were nearly
$15.2 billion, reflecting a 5.5% increase from $14.4 billion in the
year-ago quarter. Revenue was behind the Zacks Consensus Estimate
of $15.4 billion. The CareMore acquisition contributed $230 million
to the revenue in 2011, while an increase in premium designed to
cover overall cost trends and membership growth in the Senior
business fueled the overall improvement, partially offset by a
decline in fully insured Commercial membership.
During the quarter under review, WellPoint witnessed a
significant jump in medical enrollment, particularly in the Senior
accounts, with enrollment of 34.3 million members as of December
31, 2011, showing an increase of 2.8% from 33.3 million as of
December 31, 2010. Growth of members in the National business,
Senior business, State Sponsored and Federal Employee program (FEP)
membership contributed to the increase in medical enrollment, while
the membership in Local Group business remained almost flat and
Individual membership witnessed a decline.
WellPoint posted a benefit expense ratio (benefit expenses as a
percentage of premium revenue) of 87.6% in the reported quarter,
comfortably higher than 84.5% in the fourth quarter of 2010, driven
by adverse selection in certain Medicare Advantage products, higher
benefit expense in the Consumer segment and Local group business,
higher-than-anticipated prior period reserve development and high
pre-tax income in the fourth quarter of 2010.
Segment Results
Commercial Business: Operating revenue
improved 1.1% year over year to $8.6 billion in the reported
quarter. Operating gains in the segment declined 15.6% year over
year to $506.7 million in the fourth quarter of 2011, primarily on
the back of higher prior period reserve development, reduction in
the targeted margin for adverse deviation, impact of the minimum
medical loss ratio requirement and lower medical costs in the Local
Group business in 2010.
Consumer Business: Operating revenue
increased 14.1% year over year to $4.6 billion in the quarter under
review. Operating loss in the segment amounted to $4.6 million in
the reported quarter, compared to operating gains of $112.0 million
in the year-ago quarter. The decline was primarily due to changes
in reserves and higher medical costs in the Senior business.
Other: Operating revenue in the
quarter under review came in at $1.9 billion, up 6.4% year over
year. Operating gains in this segment amounted to $10.4 million in
the reported quarter, compared to operating loss of $19.6 million
in the year-ago quarter.
Full-Year 2011 Highlights
For 2011, WellPoint generated operating income of $7.00 per
share, modestly ahead of $6.74 per share in 2010. Earnings per
share also exceeded the Zacks Consensus Estimate of $7.09.
Reported net income came in at $2.6 billion or $7.25 per share,
including net investment gains of $92.2 million or 25 cents per
share against $2.9 billion or $6.94 per share in 2010. Net
investment gains of $100.2 million or 23 cents per share was
included in the 2010 result, which was partially offset by an
intangible asset impairment charge of $13.7 million or 3 cents per
share.
Total revenue for 2011 was $60.7 billion, up 3.4% year over year
from $58.7 billion and marginally exceeding the Zacks Consensus
Estimate of $60.4 billion. Meanwhile total expenses also increased
4.4% over 2010 to $56.8 billion.
Financial Update
WellPoint exited the quarter with cash and cash equivalents of
$2.2 billion, compared with $1.8 billion as of 2010 end. Long-term
debt increased to $8.4 billion as of December 31, 2011, from $8.1
billion as of 2010 end.
Operating cash flows in the fourth quarter stood at $57.9
million, excluding $596.5 million advance payment received from the
Centers for Medicare and Medicaid Services in the third quarter.
Including the CMS payment, cash flow during the fourth quarter
amounted to $654.4 million. In 2011, WellPoint generated operating
cash flows of $3.4 billion, up substantially from $1.4 billion in
2010. Operating cash flows of 2010 included $1.2 billion of tax
payments related to the 2009 sale of the NextRx pharmacy benefit
management subsidiaries.
Share Repurchase
WellPoint spent $685.6 million to buy back 10.3 million shares
in the fourth quarter. During 2011, the company repurchased 44.5
million shares for $3.0 billion. As of December 31, 2011, the
company had approximately $4.3 billion worth shares remaining under
its repurchase authorization.
Dividend Update
On January 24, 2012, the company’s Board of Directors increased
the company’s dividend by 15% to 2875 cents per share. The
increased dividend will be paid on March 23, 2012 to shareholders
of record at the close of business on March 9, 2012.
During the fourth quarter of 2011, WellPoint paid a quarterly
dividend of 25 cents per share.
Outlook for Fiscal 2012
WellPoint projects operating revenue of approximately $62.1
billion for fiscal 2012, while operating cash flow is expected to
be at least $2.9 billion.
Besides, WellPoint expects earnings per share of about $7.60, up
8.5% from $7.00 per share earned in 2011.
In addition, WellPoint also anticipates year-end 2012 medical
enrollment to be approximately 33.7 million members. Besides,
benefit expense ratio is expected to be approximately 85.3% with
SG&A expense ratio to be approximately 13.6%.
Peer Take
UnitedHealth Group Inc. (UNH), a rival of
WellPoint, declared fourth-quarter 2011 earnings of $1.17 per
share, substantially higher than the Zacks Consensus Estimate of
$1.02.
Another competitor, Aetna Inc. (AET) will
report its fourth-quarter results before the market opens on
February 1, 2012.
WellPoint carries a Zacks #3 Rank (short-term Hold rating) and a
long-term ‘Neutral’ recommendation.
AETNA INC-NEW (AET): Free Stock Analysis Report
UNITEDHEALTH GP (UNH): Free Stock Analysis Report
WELLPOINT INC (WLP): Free Stock Analysis Report
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