WellPoint Inc. (WLP) reported fourth-quarter 2012 adjusted income of $1.03 per share, beating the Zacks Consensus Estimate of 95 cents. Adjusted income also surpassed the year-ago earnings of 99 cents per share by 4%.
Including expenses related to acquisitions, along with net investment and favorable income tax settlement, the company posted net income of $464.2 million or $1.51 per share in the reported quarter, compared with $335.3 million or 96 cents per share in the fourth quarter of 2011. The year-ago quarter included net investment losses of 3 cents per share.
Operating revenues for the reported quarter were $15.3 billion, up 0.6% from the year-ago quarter level. Revenues were in line with the Zacks Consensus Estimate of $15.27 billion. The increase in revenues resulted from the acquisition of Amerigroup and 1-800 CONTACTS.
Premium revenues declined 0.2% year over year, offset by a 3.4% increase in administrative fees and a 691.0% surge in other revenues. Meanwhile, total expenses increased 1.5% to $15.1 billion.
Medical enrollment improved 5.5% to 36.1 million as of Dec 31, 2012 from 34.3 million as of Dec 31, 2011. The increase resulted from membership hike in the Senior and State Sponsored businesses. While Senior membership increased on the back of geographic expansion into new Medicare Advantage service areas, surge in State Sponsored enrollment was attributable to the Amerigroup acquisition.
These improvements offset the membership fall of 0.58 million and 0.32 million in the Local Group and National businesses, respectively, due to changes in the National Accounts’ administrative fee structure, increased competition in some Local Group markets, alterations in the product offerings in the New York small group market and in-group membership attrition due to the present economic scenario.
WellPoint posted a benefit expense ratio (benefit expenses as a percentage of premium revenue) of 87.3% in the reported quarter, marginally lower than 87.6% in the fourth quarter of 2011. The decline was driven by lower benefit expense ratio in the Commercial business, which offset the higher benefit expense ratio in the Senior and State Sponsored businesses.
Segment Results
Commercial Business: Operating revenue slipped 3.8% year over year to $8.30 billion in the reported quarter. Operating gains in the segment, however, increased 22.0% year over year to $618.1 million in the quarter, primarily due to lower benefit expense ratio in the Local Group business, partially offset by increased selling, general & administrative expenses and a decline in the fully-insured Local Group membership.
Consumer Business: Operating revenue climbed 7.6% year over year to $4.97 billion in the quarter under review. Operating loss in the segment widened to $173.3 million in the reported quarter from $4.6 million in the year-ago quarter. The downfall was primarily due to weak results in the Senior and State Sponsored businesses, costs related to the Amerigroup acquisition and other severance and impairment expenses.
Other: Operating revenue in the quarter under review came in at $2.0 billion, up 4% year over year. Operating loss in this segment amounted to $13.7, compared with operating gains of $10.4 million in the year-ago quarter. The decline resulted from higher unallocated corporate expenses in the quarter under review.
Full-Year Highlights
For 2012, WellPoint generated adjusted income of $7.56 per share, up 8% from $7.00 per share in 2011. Earnings per share also exceeded the Zacks Consensus Estimate of $7.41.
Including expenses related to acquisitions, along with net investment and favorable income tax settlement, reported net income came in at $2.7 billion or $8.18 per share in 2012, against $2.6 billion or $7.25 per share in 2011. Net investment gains of 25 cents per share were included in the 2011 results.
Operating revenues for 2012 was $60.7 billion, up 1.4% year over year from $59.9 billion in 2011. Revenues were in line with the Zacks Consensus Estimate. Meanwhile, total expenses also increased 1.9% over 2010 to $57.8 billion.
Financial Update
WellPoint exited the quarter with cash and cash equivalents of $2.48 billion, compared with $2.20 billion as of Dec 31, 2011. Operating cash flow in the fourth quarter of 2012 amounted to $759.8 million. WellPoint generated operating cash flows of over $2.7 billion in 2012, plunging from $3.4 billion in 2011.
Long-term debt increased to $14.2 billion as of Dec 31, 2012, from $8.47 billion as of Dec 31, 2011. Shareholders’ equity inched up to $23.8 billion from $23.3 billion, while total assets increased to $58.96 billion from $52.16 billion at the end of 2011.
Share Repurchase
WellPoint repurchased 11.0 million shares for $668.0 million in the reported quarter. The company spent $2.5 billion for repurchasing 39.7 million shares in 2012. As of Dec 31, 2012, the company had approximately $1.8 billion worth of authorization remaining under its share repurchase program.
Dividend Update
During the reported quarter, WellPoint paid a quarterly cash dividend of 28.75 cents per share. This resulted in a cash distribution of $87.1 million. Total amount spent on dividend payment in 2012 was $367.1 million.
Outlook for 2013
WellPoint expects net income, including integration costs related to the Amerigroup acquisition to come above $7.60 per share. Furthermore, operating revenue is expected to range between $71.5 billion and $73.0 billion.
Year-end medical enrollment is expected between 35.3–35.5 million. Meanwhile, operating cash flow is projected to be above $2.6 billion. In addition, WellPoint expects SG&A expense ratio to be approximately 13%–14%, while the guidance for the benefit expense ratio stands at 86.0%, plus or minus 0.5%.
Peer Take
UnitedHealth Group Inc. (UNH) reported its fourth-quarter 2012 earnings of $1.20 per share, in line with the Zacks Consensus Estimate. Earnings, however, increased 2.6% on a year-over-year basis.
Other peers such as CIGNA Corp. (CI) and Humana Inc. (HUM) are expected to release their third-quarter earnings shortly.
Zacks Rank
Currently, WellPoint carries a Zacks Rank #3 (Hold).
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