3rd UPDATE: WellPoint 3Q Net Falls 11% But Tops Views
(Updates 7th paragraph to elaborate on company remarks about 2010 earnings.)
By Dinah Wisenberg Brin
Of DOW JONES NEWSWIRES
WellPoint Inc.'s (WLP) third-quarter profit, down 11% on asset writedowns,
substantially exceeded Wall Street views as a key measure of the health
insurer's medical costs was lower than anticipated.
Recession-driven layoffs helped drive further enrollment declines at
WellPoint, the nation's largest managed-care company by membership, which
maintained its full-year earnings guidance.
WellPoint's 2009 earnings outlook, which anticipates higher flu and economic
pressures in the fourth quarter, is now higher on an operating basis, thanks to
strength in the third quarter. The company listed several headwinds it
anticipates for next year and declined to issue 2010 guidance for now.
For the quarter ended Sept. 30, WellPoint reported a profit of $730.2 million,
or $1.53 a share, compared with $820.7 million, or $1.60 a share, a year
earlier. Excluding a gain of 3 cents a share from investments and a write-down
of 28 cents a share for impaired assets, WellPoint's per-share earnings were $
1.78, exceeding the average analyst estimate on Thomson Reuters of $1.37 a
share.
Revenue rose 3.1% to $15.43 billion, also above the Thomson Reuters estimate
of $15.15 billion.
The upside was driven by better-than-expected medical costs as a percentage of
revenue, known as the medical cost ratio, which fell to 81.1% from 82.5% a year
ago, partly because of a favorable release of claims reserves.
WellPoint executives said it would be imprudent to provide 2010 guidance now,
given potential health reform changes and the wide range of possible effects
from the flu and insurance for laid-off members, although they maintained their
earlier prediction that operating earnings will decline next year. The company
plans to provide detailed 2010 guidance early next year.
"While the backdrop is challenging, we are encouraged by stronger than
expected Q3 results now posted by both [UnitedHealth Group Inc. (UNH) and
WellPoint], the two biggest players," Morgan Stanley analyst Doug Simpson said.
UnitedHealth, the largest health insurer by revenue, reported better-than-
expected results last week.
Even adjusting for 15 cents a share in favorable reserve development,
Oppenheimer analyst Carl McDonald said, "earnings were still much better than
expected," with the medical cost ratio more than 100 basis points lower than his
forecast. McDonald nonetheless expects WellPoint's operating earnings to fall in
2010.
While WellPoint lowered its medical-cost-ratio forecast for this year, it
increased its outlook for the growth in medical costs, citing the flu and
members laid off from client companies who become insured under COBRA plans.
Those members generally cost the company more than those in regular employer
group plans.
"We are performing well as an organization in a difficult economic
environment," President and Chief Executive Angela Braly said on a conference
call.
Medical membership fell 4.2% to 33.9 million as of Sept. 30 from a year
earlier and dropped by 366,000, or 1.1% during the third quarter, with
commercial health plans accounting for most of the decline. The company expects
ongoing pressure in commercial enrollment next year because of a weak economy,
although it anticipates adding a net 400,000 national members in January.
Ken Goulet, who heads WellPoint's commercial business, noted a "significant
decline in literally the size of the pie" of membership in commercial health
plans for which the insurer assumes full risk. "Our market share continues to
stay stable and grow, meaning we're beating our competitors."
WellPoint is pricing its health plans with discipline and to exceed growth in
total costs, according to Braly, who said the market remains competitive yet
rational.
Chief Financial Officer Wayne DeVeydt said WellPoint expects several headwinds
next year--a weak economy, active flu season, high levels of COBRA membership,
Medicare Advantage reimbursement cuts--many of which are extensions of this
year's industry pressures. The company also anticipates tailwinds, including
proceeds from the sale sometime this quarter of its pharmacy benefits management
operation and better operating efficiency.
WellPoint shares recently fell 43 cents to $46.25. Other major managed-care
stocks also were in the red Wednesday.
-By Dinah Wisenberg Brin, Dow Jones Newswires; 215-656-8285; dinah.brin@
dowjones.com
(END) Dow Jones Newswires
10-28-091435ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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