WellPoint Profit DropsPosted: Updated:
Indianapolis-based WellPoint Inc. (NYSE: WLP) is reporting first quarter net income of $701 million, compared to $885 million during the same period a year ago. Despite the decrease, Chief Executive Officer Joseph Swedish says the company outperformed expectations. April 30, 2014
INDIANAPOLIS, Ind. - WellPoint, Inc. (NYSE: WLP) today announced that first quarter 2014 net income was $701.0 million, or $2.40 per share. These results included net gains of approximately $0.10 per share. Net income in the first quarter of 2013 was $885.2 million, or $2.89 per share, which included net investment losses of approximately $0.05 per share.
Excluding the items noted in each period, adjusted net income was $2.30 per share in the first quarter of 2014, a decrease of 21.8 percent compared with adjusted net income of $2.94 per share in the prior year quarter (refer to GAAP reconciliation table for a reconciliation to the most directly comparable measure calculated in accordance with U.S. generally accepted accounting principles, or "GAAP").
"Our better than expected first quarter results reflect our value proposition in the market, the benefits we are seeing from our strategic investments and our intense focus on execution. Our membership is growing across our platforms and we are pleased with the progress we have seen in the exchanges. Provider collaboration remains a focus for us and we are working closely with all types of healthcare providers to drive value for consumers. We are off to a strong start, supporting an increase in our earnings guidance for the full year," said Joseph Swedish, chief executive officer.
"First quarter adjusted earnings per share of $2.30 exceeded our expectations and we are pleased with how 2014 has progressed so far," said Wayne DeVeydt, executive vice president and chief financial officer. "Looking ahead, we now project adjusted earnings per share to be greater than $8.40 for 2014, reflecting balanced enrollment growth across our served markets."
Membership: Medical enrollment totaled approximately 36.9 million members at March 31, 2014, an increase of approximately 1.3 million members, or 3.6 percent, from 35.7 million at December 31, 2013. Commercial and Specialty Business segment enrollment increased by 1.2 million members, as the company experienced growth in the National, Local Group, and Individual markets. Membership also grew in the Medicaid and FEP business by 121,000 and 16,000 members, respectively, partially offset by a decline in the Medicare business of 62,000 members.
Operating Revenue: Operating revenue exceeded $17.6 billion in the first quarter of 2014, an increase of approximately $210 million, or 1.2 percent, compared with approximately $17.4 billion in the prior year quarter. The growth in revenue reflected premium increases to cover overall cost trends and new fees associated with Health Care Reform, as well as higher membership in the Medicaid, Commercial self-funded and FEP businesses. These increases were partially offset by a decline in the Local Group business due to the State of New York contract conversion to a self-funded arrangement, as previously disclosed, and a decline in Medicare revenue reflecting lower enrollment as the company repositioned its Medicare Advantage product offerings.
Benefit Expense Ratio: The benefit expense ratio was 82.7 percent in the first quarter of 2014, a decrease of 100 basis points from 83.7 percent in the prior year quarter. The decline was primarily due to an improvement in the Medicaid business. The Commercial and Specialty Business segment benefit expense ratio was stable versus the first quarter of 2013, as an increase resulting from the change in the mix of the product portfolio, predominantly due to the implementation of Health Care Reform product offerings, was largely offset by the impact of higher premium revenue designed to help cover new Health Care Reform fees.
Medical claims reserves established at December 31, 2013, developed modestly better than the Company’s expectation during the first quarter of 2014.
Medical Cost Trend: For the full year 2014, the Company continues to expect that underlying Local Group medical cost trend will be in the range of 6.5 percent plus or minus 50 basis points.
Days in Claims Payable: Days in Claims Payable (“DCP”) was 44.2 days as of March 31, 2014, an increase of 5.5 days from 38.7 days as of December 31, 2013. The increase was due primarily to an increase in medical claim reserves, due in part to the timing of Individual enrollment and related benefit payments.
SG&A Expense Ratio: The SG&A expense ratio was 16.2 percent in the first quarter of 2014, an increase of 280 basis points from 13.4 percent in the first quarter of 2013. The increase was driven by new fees related to Health Care Reform effective January 1, 2014, continued investment spending in connection with the Health Care Reform driven market changes, and higher administrative costs as a result of strong membership growth during the first quarter of 2014.
Operating Cash Flow: Operating cash flow was $1.4 billion, or 2.0 times net income, in the first quarter of 2014, partially reflecting the timing of Individual enrollment and related benefit payments this year and the timing of payments related to various health care reform fees.
Share Repurchase Program: During the first quarter of 2014, the Company repurchased nearly 14.3 million shares of its common stock, or 4.9 percent of the shares outstanding as of December 31, 2013, for almost $1.3 billion, or a weighted-average price of $88.14. As of March 31, 2014, the Company had approximately $2.4 billion of Board-approved share repurchase authorization remaining.
Cash Dividend: During the first quarter of 2014, the Company paid a quarterly dividend of $0.4375 per share, representing a distribution of cash totaling $123.4 million.
On April 29, 2014, the Audit Committee declared a second quarter 2014 dividend to shareholders of $0.4375 per share. On an annualized basis, this equates to a dividend of $1.75 per share. The second quarter dividend is payable on June 25, 2014, to shareholders of record at the close of business on June 10, 2014.
Investment Portfolio & Capital Position: During the first quarter of 2014, the Company recorded net realized gains on investments totaling $41.7 million, partially offset by other-than-temporary impairment losses totaling $10.8 million. During the first quarter of 2013, the Company recorded other-than-temporary impairment losses totaling $37.9 million, partially offset by net realized gains on investments totaling $16.8 million.
As of March 31, 2014, the Company's net unrealized gain position in the investment portfolio was $994.7 million, consisting of net unrealized gains on equity and fixed maturity securities totaling $593.7 million and $401.0 million, respectively. As of March 31, 2014, cash and investments at the parent company totaled approximately $2.0 billion.
Discontinued Operations: In late December 2013, the Company entered into agreements to divest its 1-800 CONTACTS subsidiary and related assets. The sales were completed on January 31, 2014. As a result, the current and prior period operating results of 1-800 CONTACTS have been classified as discontinued operations, net of the related tax effects.
WellPoint, Inc. has three reportable segments: Commercial & Specialty Business (comprised of the Local Group, National Accounts, Individual and Specialty businesses); Government Business (comprised of the Medicaid and Medicare businesses, National Government Services, and the Federal Employee Program); and Other (comprised of unallocated corporate expenses and certain other businesses that do not meet the quantitative thresholds for separate reportable segment disclosure).
Commercial & Specialty Business: Operating gain in th