IBJNews

WellPoint shares sink after disappointing earnings report

Back to TopCommentsE-mailPrintBookmark and Share

WellPoint Inc.'s stock price dropped Wednesday after the insurer's fourth-quarter earnings failed to meet analyst expectations.

The insurer said its earnings sank 39 percent as medical claims soared thanks to a $50 million hit from the health insurer's Medicare Advantage business. The company did forecast earnings growth in 2012.

The performance led to a rare miss of Wall Street expectations, and WellPoint's full-year earnings outlook also fell short of analyst forecasts. The Indianapolis company's stock, which had mostly climbed so far in 2012, fell faster than broader trading indexes in Wednesday trading.

Shares fell $3.29, or 4.7 percent, to close at $66.11 each. They fell as much as 6 percent in the morning but rebounded slightly along with an overall market surge in the afternoon.

Investors are used to managed-care companies beating expectations handily, so WellPoint's performance doesn't sit well, Jefferies analyst David Windley said in a research note.

WellPoint, which operates Blue Cross Blue Shield plans in 14 states, said medical claims climbed nearly 10 percent in the quarter to $12.43 billion. In contrast, that expense fell 5 percent in the 2010 quarter. Medical claims are the insurer's largest expense.

WellPoint said the change was driven largely by expenses tied to its Medicare Advantage coverage.

Medicare Advantage plans are privately run, government-subsidized versions of the government's Medicare program for the elderly. WellPoint said it lost $50 million in the quarter and $150 million in 2011 due to a Northern California plan that attracted more customers with a higher risk profile than the insurer expected because a competitor left the market. Those customers generated more in claims than they provided in premiums.

WellPoint discontinued that plan as of Jan. 1.

"This actually should not repeat at all in 2012," Chief Financial Officer Wayne DeVeydt said.

Overall, WellPoint earned $335.3 million, or 96 cents per share, in the three months that ended Dec. 31. That's down from $548.8 million, or $1.40 per share, in the final quarter of 2010. Adjusted net income, which excludes investment gains, was 99 cents per share.

Operating revenue, which also excludes investment gains, climbed 5.5 percent to $15.18 billion.

Analysts surveyed by FactSet expected, on average, earnings of $1.12 per share on $15.46 billion in revenue.

WellPoint spokeswoman Kristin Binns also said the insurer faced a tough comparison with its performance in the final quarter of 2010. In that quarter, it recorded a benefit of $315 million because claims left over from previous quarters came in lower than expected. It had no gain like that in the 2011 quarter.

Managed care companies have been buoyed the past few quarters by health care use that has grown at lower-than-expected rates. This trend, which many say is driven by a pullback on consumer spending, has helped companies consistently beat analyst expectations. Analysts have said they expect this trend to continue into 2012.

DeVeydt said utilization did rise in the fourth quarter, but it remained lower than normal, and trends were affected more by the cost of care than the number of people receiving it. In other words, the insurer saw bigger hospital bills rather than more people heading to the hospital.

WellPoint competitor UnitedHealth Group Inc. said last week it expects utilization to increase steadily throughout the new year. UnitedHealth reported a 21 percent increase in fourth-quarter earnings, to $1.26 billion, or $1.17 per share.

For 2012, WellPoint expects to earn at least $7.60 per share on about $62.1 billion in operating revenue. Analysts expect earnings of $7.76 per share on $63 billion in revenue. Windley said he expects WellPoint's initial outlook to increase during the year.

ADVERTISEMENT

  • Compensation
    I am guessing that the Board of Directors and the Compensation Committee Chairman are shaking their heads right about now. The Healthcare Insurance Companies all dumped millions into the pockets of every member of the US House and Senate during the healthcare debates, and not one company complained about the bill passing. I am guessing the insurance companies want to renegotiate rate plans. The Elderly better get ready, they are about to get hosed on their Medicare Coverage. Watch to see if the Senior Management gets their bonuses anyway.

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. why oh why does this state continue to elect these people....do you wonder how much was graft out of the 3.8 billion?

  2. i too think this is a great idea. I think the vision and need is there as well. But also agree with Wendy that there may be better location in our city to fulfill this vision and help grow the sports of hockey and figure skating in Indy. Also to help further develop other parts of the city that seem often forgotten. Any of the other 6 townships out side of the three northernmost could benefit greatly from a facility and a vision like this. For a vision that sounds philanthropic, the location is appears more about the money. Would really like to see it elsewhere, but still wish the development the best of luck, as we can always use more ice in the city. As for the Ice growth when they return, if schedules can be coordinated with the Fuel, what could be better than to have high level hockey available to go see every weekend of the season? Good luck with the development and the return of the Ice.

  3. How many parking spaces do they have at Ironworks? Will residents have reserved spaces or will they have to troll for a space among the people that are there at Ruth Chris & Sangiovese?

  4. You do not get speeding ticket first time you speed and this is not first time Mr.Page has speed. One act should not define a man and this one act won't. He got off with a slap on the wrist. I agree with judge no person was injured by his actions. The state was robbed of money by paying too much rent for a building and that money could have been used for social services. The Page family maybe "generous" with their money but for most part all of it is dirty money that he obtained for sources that are not on the upright. Page is the kind of lawyer that gives lawyers a bad name. He paid off this judge like he has many other tine and walked away. Does he still have his license. I believe so. Hire him to get you confiscated drug money back. He will. It will cost you.

  5. I remain amazed at the level of expertise of the average Internet Television Executive. Obviously they have all the answers and know the business inside and out.

ADVERTISEMENT