INDIANAPOLIS – WellPoint Inc., the largest for-profit health insurer in the country, reported 2011 fourth quarter earnings 39 percent below 2010 Q4 earnings, largely due to increased medical expense in its Medicare Advantage business.
“Our consumer segment underperformed and it was due almost entirely to the senior business,” said Angela Braly, WellPoint, CEO, on the company’s earnings call.
WellPoint reported a fourth-quarter profit of $335.3 million, or 96 cents a share, down from $548.8 million, or $1.40, a year earlier. Analyst estimates published by Thomson Reuters had forecast earnings of $1.12 in the recent quarter.
Specifically, company officials cited a Medicare Advantage plan in California as being the major culprit, a business that it has exited for 2012 in favor of smaller, more targeted plans in the state.
The markets reacted unfavorably to the earnings miss as well as 2012 guidance that also falls below analyst estimates. WellPoint shares were down roughly 6 percent in early trading on the New York Stock Exchange and its performance also appeared to be dragging down others in the sector, with Humana, Aetna and Cigna down between 1 percent and 3 percent.
Despite the miss, industry analysts were not all bearish about the company’s report.
“While WLP’s 4Q results are somewhat disappointing, we don’t see this as a disaster since the company has refined its (Medicare Advantage) product and pricing for 2012, as demonstrated by its guidance, which assumes EPS growth of at least 8.7 percent,” said Jason Gurda of Leerink Swan in an investment note.
WellPoint alerted the markets of the problems it was experiencing in its Medicare segment in July, noting that one plan in California was attracting members with particularly high medical expenses.
For 2011, the company reported total revenue of $59.8 billion up 3.7 percent from 2010 when revenue totaled $57.7 billion. The company attributed much of the increase to member growth and premium growth. WellPoint added more than 928,000 new medical members in 2011, bringing its total book of business to 34.3 million people, or about 11 percent of the country’s population.
Year-end net income was $2.6 billion, or $7.25 per share, and included net investment gains of $92.2 million after-tax, or $0.25 per share. The company also released 2012 earnings guidance of $7.60 per share, also less than the $7.76 estimated by Wall Street.
