* 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 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
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
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
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
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