UPDATE 3-WellPoint cuts forecast as quarterly profit misses view

Wed Jul 25, 2012 8:55am EDT

* Second-quarter EPS $2.04 vs $2.08 Wall Street view

* Sees FY EPS $7.30-$7.40 vs prior view of at least $7.57

* CEO 'disappointed' with need to lower forecast

* Company cites medical cost trends, competitive pressures

* Shares fall 8 percent; Aetna, UnitedHealth also down

By Lewis Krauskopf

July 25 (Reuters) - Health insurer WellPoint Inc posted a lower-than-expected quarterly profit on Wednesday and cut its full-year earnings forecast, citing lower enrollment and higher medical cost trends, sending its shares down 8 percent in premarket.

The second-largest health insurer by market value said its medical cost trends would likely come in at the high end of its forecast, while intense competition among health plans was pressuring its enrollment.

"We are disappointed with the need to lower our guidance, but believe it is the right action to take, given the challenging market we see," Chief Executive Officer Angela Braly said in a statement.

Several analysts said it was particularly discouraging that WellPoint was cutting its forecast only after backing it a couple weeks ago, when it announced its $4.5 billion acquisition of Medicaid specialist Amerigroup Inc.

Shares of rivals UnitedHealth Group Inc and Aetna Inc were both off more than 2 percent after WellPoint's report.

WellPoint's second-quarter net income fell to $643.6 million, or $1.94 per share, from $701.6 million, or $1.89 per share, a year earlier, when the company had more outstanding stock.

Excluding items, WellPoint reported earnings of $2.04 per share, 4 cents below analysts' average estimate, according to Thomson Reuters I/B/E/S.

Revenue rose 2 percent to $15.17 billion, about $100 million below analyst estimates.

WellPoint said it saw an increase in use of medical services during the quarter, stemming from an increase in physician office visits.

Americans' low use of healthcare services has proved to be a boon for health insurers over the past two years by reducing their medical claim costs and increasing profits. But investors have been bracing for utilization to start rising again.

"While other insurers have noted a rise in outpatient visits this year, WellPoint's lowered guidance suggests the problem is more acute for it relative to guidance," Wells Fargo analyst Peter Costa said in a research note.

Larger rival UnitedHealth last week also highlighted tough competition among health plans, as well as a challenging climate for Medicare and Medicaid reimbursement. The executives' comments sent UnitedHealth's shares down, even though the insurer reported a higher-than-expected profit and slightly raised its forecast.

LOWER ENROLLMENT VIEW

WellPoint's latest setbacks come after other recent struggles for the company involving high costs for its Medicare plans for seniors that led to weaker results.

WellPoint forecast 2012 earnings per share in a range of $7.30 to $7.40. In June, it said it expected earnings of at least $7.57 per share.

The company's enrollment totaled 33.5 million at the end of June, down about 1.9 percent from a year earlier. It projects year-end enrollment of about 33.4 million, down about 200,000 members from its prior view.

Leerink Swann analyst Jason Gurda said the changes to enrollment and cost trend estimates "appear fairly modest and suggest to us that WellPoint's full-year guidance may not have been particularly conservative to begin with."

The new profit forecast includes about 15 cents per share in costs related to financing the Amerigroup deal, which is a major bet on the expansion of private industry's role in the Medicaid U.S. government health plan for poor Americans.

It comes on the heels of the U.S. Supreme Court's decision to uphold President Barack Obama's healthcare law, which is set to expand Medicaid eligibility by about 16 million people largely by raising income limits for the program.

WellPoint is the second health insurer to post results since the court upheld the law in late June. Large health insurance shares have fallen since the decision on the legislation, which tightens regulations and adds new fees on the industry while also potentially paving the way for millions of new customers by expanding coverage to the uninsured.

WellPoint shares slumped 8 percent to $56.50 in premarket trading. Through Tuesday, WellPoint shares had fallen about 7 percent this year, underperforming a 1 percent decline for the Standard & Poor's Managed Health Care index of large insurers .

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