WellPoint Inc. (WLP)

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WellPoint (WLP)

Q2 2011 Earnings Call

July 27, 2011 7:30 am ET

Executives

Brian Sassi - Executive Vice President of Strategy and Marketing, Chief Executive Officer of Consumer Business Unit and President of Consumer Business Unit

Michael Kleinman - Vice President of Investor Relations and Acting Vice President of Internal Audit, Ethics & Compliance

Ken Goulet - Executive Vice President, Chief Executive Officer of Commercial Business Unit and President of Commercial Business Unit

Wayne Deveydt - Chief Financial Officer and Executive Vice President

Angela Braly - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Analysts

Joshua Raskin - Barclays Capital

Michael Baker - Raymond James & Associates, Inc.

Justin Lake - UBS Investment Bank

Carl McDonald - Citigroup Inc

Matthew Borsch - Goldman Sachs Group Inc.

Scott Fidel - Deutsche Bank AG

David Windley - Jefferies & Company, Inc.

Thomas Carroll - Stifel, Nicolaus & Co., Inc.

John Rex - JP Morgan Chase & Co

Kevin Fischbeck - BofA Merrill Lynch

Christine Arnold - Cowen and Company, LLC

Doug Simpson - Morgan Stanley

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the WellPoint conference call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to company's management.

Michael Kleinman

Good morning, and welcome to WellPoint's Second Quarter Earnings Conference Call. I'm Michael Kleinman, Vice President of Investor Relations. With me this morning are Angela Braly, our Chair, President and Chief Executive Officer; and Wayne Deveydt, Executive Vice President and Chief Financial Officer. Angela will begin this morning's call with an overview of our second quarter results, actions and accomplishments. Wayne will then offer a detailed review of our financial performance, capital management and current guidance, which will be followed by a question-and-answer session. Ken Goulet, Executive Vice President and President of our Commercial Business; and Brian Sassi, Executive Vice President of Strategy and Marketing and President of our Consumer Business are available to participate in the Q&A session.

During this call, we will reference certain non-GAAP measures. A reconciliation of these non-GAAP measures to the most directly comparable measures calculated in accordance with GAAP is available on our company website at www.wellpoint.com. We will also be making some forward-looking statements on this call. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally, beyond the control of WellPoint. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review the risk factors discussed in our press release this morning and in our quarterly and annual filings with the SEC.

I will now turn the call over to Angela.

Angela Braly

Thank you, Michael, and good morning. Today, we are pleased to report second quarter 2011 earnings per share of $1.89, which included net investment gains of $0.06 per share. Earnings per share in the second quarter of 2010 totaled $1.71 per share and included net investment gains of $0.04 per share. Excluding the net investment gains in each period, our adjusted EPS was $1.83 for the second quarter of 2011, an increase of 9.6% compared with adjusted EPS of $1.67 in the same period of last year.

Our second quarter results exceeded our forecast and reflected the significant administrative cost savings that we've been able to achieve through our continuous improvement and efficiency initiative. Our performance continues to be strong in our Commercial segment and in the capital management areas of the company, while we are experiencing lower than expected results in our Senior business this year.

Based on our second quarter results, today, we are raising our full year 2011 earnings per share guidance to a range of $6.90 to $7.10 on a GAAP basis, which includes $0.15 per share of net investment gains realized during the first half of the year. On an adjusted basis or excluding the net investment gain, our full year EPS guidance equates to a range of $6.75 to $6.95.

Our medical enrollment totaled nearly 34.2 million members as of June 30, 2011. Membership was stable on a sequential basis in the quarter as we've achieved organic membership gains in our State Sponsored and Senior programs, which were substantially offset by any group membership attrition in the Commercial segment.

While we have experienced negative and group change during 2011, it has been much lower than the in-group losses we experienced in 2010. Unfortunately, the economy remains challenging and we expect to continue experiencing modest attrition throughout the second half of this year. We currently anticipate ending 2011 with 33.9 million members.

As we look ahead to 2012, while we're not projecting an economic rebound, we are optimistic that the headwind of negative in-group membership change will further abate. We also expect to maintain our leadership position in the National Accounts marketplace. The current National Accounts selling season has been very active, with many large customers conducting formal RFPs including several of our existing accounts.

The marketplace continues to be significantly focused on the ability of health plans to deliver competitive medical costs and we continue to be very well-positioned in this area. We already have a number of new sales for January 1, 2012. We're remaining disciplined in our National Accounts pricing for both new business and renewals, and as a result, we expect to lose some targeted accounts that are currently unprofitable.

Overall, we expect our National Accounts membership to remain stable next year and our National Account operating margin to expand.

Operating revenue totaled approximately $14.9 billion in the second quarter of 2011, an increase of $681 million or nearly 5% from the second quarter of 2010. This was driven by premium increases designed to cover overall cost trends and membership growth in the Senior business and in the federal employee program. These increases in revenue were partially offset by a decline in fully insured Commercial membership. Overall, the marketplace is competitive, but generally rational, and most competitors appear to be adjusting to minimum medical loss ratio requirement as we expected they would.

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