WellPoint's 3Q profit falls 7.5 pct; outlook rises

October 26, 2011 - 8:35 AM

INDIANAPOLIS (AP) — WellPoint Inc.'s third-quarter earnings fell more than 7 percent compared to last year, when results were fortified by a $110 million release from the health insurer's reserves. The performance still topped Wall Street expectations.

The largest publicly traded health insurer based on enrollment also raised its earnings forecast for 2011 and said Wednesday it expects earnings growth in 2012.

Its shares rose $2.40, or 3.6 percent, to $69.40 in pre-market trading.

For the three months that ended Sept. 30, the Indianapolis company reported net income of $683.2 million, or $1.90 per share. That's down from $739.1 million, or $1.84 per share, a year earlier, when the company had more shares outstanding.

Adjusted net income, which excludes investment gains, was $1.77 per share. That beat analyst expectations for earnings of $1.68 per share, according to a survey by FactSet.

Total revenue rose 5.7 percent to about $15.4 billion. Operating revenue, which also excludes investment gains, climbed almost 6 percent to $15.2 billion.

Analysts expected revenue of $15.22 billion.

WellPoint operates Blue Cross Blue Shield plans in 14 states, including California, New York and Ohio.

Goldman Sachs analyst Matthew Borsch said in a research note that WellPoint turned in "the type of solid quarter we think investors were expecting."

Citi analyst Carl McDonald said in a separate note results were far better than the insurer's disappointing second quarter, when Medicare Advantage costs dragged down its performance.

Last year's results included a benefit of $110 million because claims left over from previous quarters came in lower than WellPoint expected, and the company released the money from its reserves into its operating cash flow, which affects earnings, spokeswoman Kristin Binns said.

The company's benefit expense, or the amount it pays in medical claims, jumped more than 7 percent to $12.06 billion, in the latest quarter mainly because WellPoint did not have that release from reserves. The insurer said it was still seeing lower than expected growth in care utilization.

This trend has helped WellPoint and other insurers turn in strong performances in recent quarters, as consumers have pulled back on their health care spending in a sluggish economy.

WellPoint's total expenses climbed nearly 7 percent to $14.35 billion, as selling, general and administrative expenses also rose.

The insurer's enrollment rose more than 2 percent to 34.4 million members compared to last year's quarter. Enrollment in its senior business grew nearly 15 percent to 1.4 million people, helped by WellPoint's acquisition of Medicare Advantage plan provider CareMore Health Group.

WellPoint now expects 2011 earnings to range between $6.90 and $7 per share, not counting investment gains. That's up from previous guidance of $6.75 to $6.95 per share, and Chief Financial Officer Wayne DeVeydt said in a statement the insurer anticipates that it can grow earnings in 2012 from that new guidance.

Analysts surveyed by FactSet expect, on average, earnings of $7.06 per share in 2011.