UPDATE 4-WellPoint raises outlook as profit tops views

Wed Apr 25, 2012 12:47pm EDT

* Q1 EPS $2.34 vs $2.27 Wall Street view

* Sees full year earnings "at least" $7.65/share

* Membership fell 1.5 percent to about 33.7 million

* Insurers, investors watch utilization rates carefully

* Shares rise 0.6 percent

By Lewis Krauskopf and Debra Sherman

April 25 (Reuters) - WellPoint Inc reported a lower quarterly profit as membership fell, but the results topped Wall Street's target, and the health insurer raised its outlook.

The No. 2 health insurer by market value also said the performance of its Medicare business had improved after problems with such plans dragged down results in 2011.

After posting disappointing results in recent periods, WellPoint's first-quarter report should prove reassuring to investors, analysts said. Shares were up 0.6 percent in midday trading.

"Results more or less as we expected. I'd say mediocre," Morningstar analyst Matthew Coffina said. "The first quarter doesn't tell you that much because claims are still evolving and we might not get a better picture of what healthcare utilization is until the second quarter."

WellPoint Chief Executive Angela Braly told analysts on a conference call that the company has made some operational changes to improve the company's performance, including naming one new executive to lead the Medicare business and another to oversee operations across the company.

"I really feel great about our team," Braly said on the call.

Health insurers largely posted higher-than-expected profits in 2011 because of Americans' low use of medical services in the weak economy, leading their shares to far outperform the broader stock market. Wall Street is eager to see if the trend has continued this year.

Last week, UnitedHealth Group Inc, the largest U.S. health insurer by market value, raised its profit outlook after posting a higher-than-expected 3 percent rise in earnings, and said medical utilization trends remained moderate.

In an interview, WellPoint Chief Financial Officer Wayne DeVeydt said the company saw a small increase in the utilization of healthcare services in the latest quarter, but that was driven by the extra day because of the leap year and an unseasonable warm winter, which meant more people could get to the doctor.

DeVeydt said he does not expect a significant increase in utilization until the nation creates more jobs.

"This has been a jobless (economic) recovery," he said. "Until we start seeing more people getting jobs, we won't see a bump."

ENROLLMENT FALLS

First-quarter net income fell to $856.5 million, or $2.53 per share, from $926.6 million, or $2.44 per share, a year earlier.

Excluding items, earnings per share of $2.34 topped the analysts' average estimate by 7 cents, according to Thomson Reuters I/B/E/S.

Revenue rose 3.5 percent to $15.4 billion, helped by WellPoint's acquisition of Medicare specialist CareMore and rate increases.

Membership fell 1.5 percent to about 33.7 million, hurt by declines in businesses serving large and small employers.

Wells Fargo analyst Peter Costa said the declines in commercial membership were larger than expected.

Earnings in WellPoint's consumer business rose nearly 6 percent to $217.7 million, reflecting improvement in the company's Medicare Advantage plans.

WellPoint warned last July that surprisingly high claims from a Medicare plan in California would hurt earnings in 2011. Those losses ended up weighing on 2011 results more than the company initially expected.

Citigroup analyst Carl McDonald said it was unclear whether WellPoint had enough information about its claims trends this early in the year "to know exactly how the Medicare business is performing, particularly given all the new members added this year."

"Last year, for example, WellPoint thought its Medicare business was fine right now, and it wasn't until the second quarter report that it became clear the product was underpriced," McDonald said in a research note.

DeVeydt said he feels confident about the actions the company has taken to improve the Medicare business, but stressed that management does not expect to see full results for a few years.

"We see this as a multi-year fix. But we are confident about the actions we've taken," he said.

WellPoint forecast 2012 earnings of at least $7.65 per share, excluding items. It previously said it had expected at least $7.60. Analysts have been looking for $7.74.

WellPoint shares were up 0.6 percent to $71.19 in early afternoon trading on the New York Stock Exchange. Through Tuesday, the shares were up nearly 7 percent this year, compared with a nearly 14 percent rise for the Morgan Stanley Healthcare Payor index of health insurers.

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