) reported third-quarter 2013 adjusted income of $2.10 per share,
beating the Zacks Consensus Estimate of $1.83 per share. Adjusted
income was a penny higher than the year-ago earnings of $2.09 per
The improvement in the results came on the back of a
lower-than-expected medical cost experience and growth in
membership and revenues. Further, both the Commercial and
Government segments showed improvements to add to the improving
performance of WellPoint.
Including net investment gains and cost for early retirement
of debt of 6 cents per share, WellPoint posted net income of
$656.2 million or $2.16 per share in the reported quarter
compared with $691.2 million or $2.15 per share in the third
quarter of 2012. The year-ago quarter included some non-recurring
items of 6 cents per share.
Operating revenues of WellPoint for the reported quarter were
$17.7 billion, in line with the Zacks Consensus Estimate.
However, revenues rose 17.2% from the year-ago quarter level. The
increase in revenues resulted from the acquisition of Amerigroup,
partly offset by the decline in Medicare revenues due to lower
WellPoint's premium revenues increased 18.1% year over year,
administrative fees improved 7.6% while other revenues declined
11.8%. Meanwhile, total expenses increased 19.3% to $17.1
Medical enrollment of WellPoint improved 6% to 35.5 million as
of Sep 30, 2013 from 33.5 million as of Sep 30, 2012. The upside
resulted from an increase in Medicaid membership attributable to
the Amerigroup acquisition. The improvement was partially offset
by the membership fall in the Commercial and Medicare
WellPoint posted a benefit expense ratio (benefit expenses as
a percentage of premium revenue) of 84.9% in the reported
quarter, improving 50 basis points from 85.4% in the third
quarter of 2012. The improvement was mainly due to growth in
Medicare business, partly offset by the high benefit expense
ratio of the Amerigroup business.
Commercial & Specialty Business:
This segment covers the Local Group, National Accounts,
Individual and Specialty businesses. Operating revenues improved
0.4% year over year to $9.79 billion in the reported quarter.
Operating gains in the segment, however, declined 19.3% year
over year to $688.2 million in the quarter, primarily due to
higher SG&A expense that resulted from investment spending in
preparation for health insurance exchanges, and higher
compensation expense. However, these were partially offset by
slight decline in the Commercial segment benefit expense
This segment consists of the Medicaid and Medicare businesses,
National Government Services, and the Federal Employee Program
(FEP). Operating revenues climbed 47.6% year over year to $7.93
billion in the quarter under review.
Operating gains in the segment increased 93.2% to $326.5
million in the reported quarter from $169.0 million in the
year-ago quarter. The increase was due to the inclusion of the
Amerigroup business, favorable reserve development and higher
revenues in the Medicare operations.
This segment comprises the unallocated corporate expenses as well
as some businesses, which are not covered by the other two
segments. Operating revenues in the quarter under review was
$12.8 million, up 52.4% year over year.
Operating loss in this segment amounted to $5.3 million,
narrowing from $17.5 million loss in the year-ago quarter. The
improvement resulted from a decline in the unallocated corporate
expenses in the quarter under review.
WellPoint exited the quarter with cash and cash equivalents of
$2.2 billion, compared to $2.5 billion as of Dec 31, 2012.
Operating cash flow in the first nine months of 2013 amounted to
$2.8 billion, compared to $1.98 billion at year end 2012.
Long-term debt of WellPoint increased to $14.51 billion as of
Sep 30, 2013, from $14.17 billion as of Dec 31, 2012. Shareholder
equity inched up to $24.8 billion from $23.8 billion, while total
assets increased to $60.3 billion from $58.96 billion at the end
WellPoint repurchased approximately 6.5 million shares for
$554.9 million in the reported quarter. This amounted to an
aggregate repurchase of 15.6 million shares for $1.2 billion or
$74.86 per share over the first nine months of 2013. As of Sep
30, 2013, WellPoint had approximately $4.2 billion worth of
authorization remaining under its share repurchase program.
During the reported quarter, WellPoint paid a quarterly cash
dividend of 37.5 cents per share. This resulted in cash
distribution of $111.4 million.
On Oct 23, 2013, WellPoint declared a quarterly cash dividend
of 37.5 cents per share for the fourth quarter of 2013. The
dividend will be paid on Dec 23, 2013 to shareholders of record
as of Dec 10.
Outlook for 2013
Including net investment gains of 20 cents per share, cost for
early termination of Amerigroup's PBM contract of 5 cents per
share, tax benefits of 21 cents per share and expenses associated
with the early retirement of debt worth 31 cents per share, net
income is expected to be greater than or equal to $8.45 per share
in 2013. Adjusting for these items, adjusted net income is
projected to be at least $8.40 per share for full year 2013.
Furthermore, the guidance for operating revenues was
reaffirmed at $70-$72 billion. Year-end medical enrollment
guidance was raised to 35.6 million from 35.3-35.5 million.
Meanwhile, operating cash flow is projected at approximately
$3 billion, higher than the previous guidance of $2.8 billion. In
addition, WellPoint expects SG&A expense ratio to be roughly
14%-14.5%, higher than the previously guided range of 13.5%-14%,
while the guidance for benefit expense ratio was reduced to
85.0%, plus or minus 0.5% from 85.5%, plus or minus 0.5%.
WellPoint exceeded our earnings expectation, as well as beat
the year-ago numbers by a penny. Top line also fared well, being
in line with the Zacks Consensus Estimate and beating the
year-ago numbers. However, a higher than increase in expenses as
compared to revenues led to a decline in operating margin during
the reported quarter.
Nevertheless the acquisition of Amerigroup has been beneficial
to WellPoint on account of an improvement in Medicaid membership
during the quarter. Moreover, improved performance across all its
operating segments remained impressive.
Furthermore, the repurchase of the outstanding notes led to an
early retirement of debt during the quarter that is expected to
generate interest savings going forward. WellPoint currently
carries a Zacks Rank #1 (Strong Buy).
Results at Other Healthcare Providers
UnitedHealth Group Inc.
) reported its third-quarter 2013 earnings of $1.53 per share,
missing the Zacks Consensus Estimate by a penny. Earnings,
however, grew 2.0% year over year.
HEALTH NET INC (HNT): Free Stock Analysis
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UNITEDHEALTH GP (UNH): Free Stock Analysis
WELLPOINT INC (WLP): Free Stock Analysis
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Other players such as
Health Net Inc.
) are expected to release their third-quarter earnings