WellPoint Inc. (WLP) reported second-quarter income from continuing operations of $701.6 million or $1.89 per share, surpassing the Zacks Consensus Estimate of $1.79 per share. This was a decline from the operating income of $722.4 million in the year-ago quarter. However, earning per share rose from $1.71 in the year-ago quarter due to reduction in the number of outstanding shares.
Improved membership growth and decline in selling, general and administrative expenses led to higher than estimated revenues. However, these improvements were offset by an increase in the Medicare Advantage expenses, predominantly in the Senior business, leading to lower earnings as compared to the year-ago quarter.
WellPoint reported a net income, excluding net investment gains or losses, of $1.83 per share in the second quarter of 2011, down 3% from the prior year quarter.
However, increased efficiency led to a 6.7% decline in the selling, general and administrative expenses, while income tax expense reduced to $305.8 million, showing a 25% drop from the year-ago quarter.
Total operating revenues, excluding net investment gains or losses, for the reported quarter was nearly $14.9 billion, reflecting a 4.8% surge from the year-ago quarter.
However, WellPoint witnessed a significant jump in medical enrollment, particularly in the national accounts, during the reported quarter, with enrollment of 34.2 million members as on June 30, 2011, an increase of 2.1% from June 30, 2010.
Growth of members in the National business, Senior business and State Sponsored membership contributed to the increase in medical enrollment.
WellPoint posted a benefit expense ratio (benefit expenses as a percentage of premium revenue) of 85.7% in the reported quarter as against 82.9% in the second quarter of 2011, driven by membership growth in the Senior businesses and lower prior period reserve development.
Segment Results
Commercial Business: Operating gains in the segment increased 0.2% year over year to $747.2 million in the second quarter of 2011. The increase in Local Group business expense was offset by a reduction in SG&A expense.
Consumer Business: Operating gains in the segment plummeted by 41.3% year over year to $176.7 million in the reported quarter, due to reduced prior period reserve development and lower operating gains in the Senior businesses owing to higher medical costs.
Other: Operating gains in this segment were $22.8 million, primarily driven by lower administrative expenses.
Financial Update
WellPoint generated operating cash flow of $771.8 million in the second quarter of 2011. At the end of June 30, 2011, cash and investments at the parent company totaled approximately $2.3 billion.
During the second quarter of 2011, WellPoint witnessed net investment gains of $33.1 million pre-tax, consisting of net realized gains from the sale of securities totaling $41.5 million. In the prior-year quarter, WellPoint experienced net investment gains of $30.4 million pre-tax, consisting of net realized gains from the sale of securities totaling $36.5 million.
During the reported quarter, WellPoint repurchased approximately 9.5 million shares for $714.8 million.
Business Update
On June 8, 2011, WellPoint announced the agreement to acquire a privately held Medicare specialist, CareMore Health Group, for $800 million. The acquisition is expected to close by the end of the year 2011 and is subject to certain state regulatory approvals and standard closing conditions and customary approvals required under the Hart-Scott-Rodino Antitrust Improvements Act. While the deal is not expected to impact 2012 earnings, it is projected to be accretive to earnings in 2013 and beyond.
CareMore is a senior-focused health care delivery program that includes Medicare Advantage plans and clinics designed to deliver proactive, integrated, individualized health care in select California, Arizona and Nevada markets. CareMore will help WellPoint to expand CareMore model both within its existing markets and to WellPoint markets across the country.
Dividend Update
On July 26, 2011, WellPoint declared a quarterly dividend of 25 cents per share for the third quarter of 2011. The dividend is payable on September 23, 2011 to shareholders of record at the close of business on September 9, 2011
On June 24, 2011, WellPoint paid a regular quarterly cash dividend of 25 cents per share to shareholders of record as on June 10, 2011. This represented a cash distribution of $91.1 million.
Outlook for Fiscal 2011
WellPoint anticipates a net income of $6.90 to $7.10 per share, including net investment gains of 15 cents per share. This is an increase from the previous estimate of $6.70 per share. Further, this outlook includes no investment gains or losses beyond those recorded during the first half of 2011.
In addition, WellPoint also anticipates year-end 2011 medical enrollment to be approximately 33.9 million members. Besides, benefit expense ratio is expected to be approximately 85.1-85.3% with SG&A expense ratio to be approximately 14%.
Operating revenue is expected to be approximately $59.9 billion for fiscal 2011, while operating cash flow is expected to be at least $2.8 billion.
One of WellPoint’s competitors, UnitedHealth Group Incorporated (UNH) reported second quarter 2011 operating earnings of $1.16 per share, beating the Zacks Consensus Estimate of 93 cents. Another peer, CIGNA Corporation (CI), is expected to declare its second quarter 2011 results before the market opens on August 4, 2011.
WellPoint carries a Zacks #2 Rank, which translates into a short term Buy rating.
CIGNA CORP (CI): Free Stock Analysis Report
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WELLPOINT INC (WLP): Free Stock Analysis Report
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