* Quarterly adj profit $2.09/share vs Street view $1.84
* WellPoint reaffirms profit forecast for full year
* Shares fall more th an 5 pct
By Toni Clarke
Nov 7 Health insurer WellPoint Inc
reported forecast-beating third-quarter earnings on Wednesday,
but investors were disappointed that the company did not raise
its guidance and said the higher earnings had a weak underside.
Shares of WellPoint, the second-largest U.S. health insurer
by market value, slumped more than 5 percent, even as the
company's chief financial officer tried to reassure investors
over the outlook for the year.
The CFO, Wayne DeVeydt, told analysts on a conference call
that the company's decision not to increase its full-year
forecast, despite what it described as strong results, stemmed
from a simple desire to maintain a "conservative and cautious
Analysts, however, remained unconvinced.
"Earnings per share beat consensus by 13 percent and was
'favorable' to management's expectations," said David Windley,
an analyst at Jefferies & Company. "However, this benefit did
not flow through to the year-end."
Jason Gurda, of Leerink Swann, said the results were not as
compelling as those of most WellPoint peers.
"Earnings were ahead of expectations, but it was largely due
to a lower-than-expected tax rate and share count," Gurda said.
"On the operating side, they were largely in line with
expectations; however, most of their peers came in well ahead
Net income rose 1.17 percent to $691.2 million, or $2.15 per
share, helped by cost-cutting as well as a lower tax rate and
share count. Excluding items, the company earned $2.09 a share,
above the average estimate of $1.84 forecast by analysts polled
by Thomson Reuters I/B/E/S.
WellPoint's effective income tax rate was 32.6 percent in
the quarter, down from 34.6 percent a year ago.
The company repurchased 11.3 million shares during the third
quarter. It said it bought back another 10.3 million shares
Operating revenue topped $15.1 billion, little changed from
a year ago. Premium revenue declined 1 percent, and the health
benefit-to-expense ratio was 85.4 percent, up from 85.1 percent
a year earlier.
WellPoint said enrollment totaled 33.5 million members at
the end of September, down 2.5 percent from a year earlier.
Shares of WellPoint, which has a market value of about $19.9
billion, fell 5.3 percent to $57.94 in midday trading on the New
York Stock Exchange.
WellPoint is currently being run by an interim chief
executive, John Cannon, who took over following the abrupt
resignation of Angela Braly in August. Cannon said it would be
"inappropriate" to comment in detail on the company's search for
a new CEO, but he said the search could extend into the first
quarter of 2013.
PREPARING FOR HEALTHCARE REFORM
Following the re-election of President Barack Obama on
Tuesday, which puts Obama's healthcare reform act on course to
be fully implemented, WellPoint said it expects to spend an
incremental $200 million to $300 million in 2013 to get ready.
The law aims to provide coverage for 16 million more
Americans through privately run health insurance exchanges. It
will expand eligibility for Medicaid, the government's insurance
program for the poor, to an additional 16 million people by
raising limits on household income.
WellPoint said about half of its planned spending will go
toward preparing for the exchanges, which are scheduled to be
operational by Jan. 1, 2014. The other half of the planned
spending will cover, among other things, ensuring WellPoint it
is able to provide coverage for so-called dual-eligibles, or
some 9 million Americans who meet the criteria to receive both
Medicaid and Medicare, the federal health insurance program for
Care for dual-eligibles is moving to the private sector and
could generate billions of dollars in profit for insurance
The reforms, which will give insurers millions of new
customers, also imposes conditions under which patients may not
be denied coverage due to pre-existing conditions.
On the conference call, Cannon congratulated Obama on his
"We look forward to continue to work with his administration
on ways to improve our nation's healthcare system," he said.
"Clearly, the need to improve access to, and affordability of,
healthcare remains a critical issue."
The shifting health insurance market place, which is also
characterized by a desire by government to curb reimbursement
for Medicare and Medicaid, has spurred a number of deals in the
sector as companies rush to gain scale and market share.
WellPoint in July announced a deal to buy rival Amerigroup
Corp for $4.46 billion to focus on its Medicaid
business. This was closely followed by Aetna announcing the $5.6
billion purchase of Coventry Health Care Inc.