WellPoint Details Lower Quarterly Profit

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Indianapolis-based WellPoint Inc. (NYSE: WLP) is reporting third quarter net income of $631 million, compared to $656 million during the same period a year ago. The health benefits provider, which is set to change its name to Anthem Inc. by year's end, is projecting a stronger enrollment outlook. October 29, 2014

News Release

INDIANAPOLIS, Ind. - WellPoint, Inc. (NYSE: WLP) today announced that third quarter 2014 net income was $630.9 million, or $2.22 per share. These results included net losses of approximately $0.14 per share. Net income in the third quarter of 2013 was $656.2 million, or $2.16 per share, which included net gains of approximately $0.06 per share.

Excluding the items noted in each period, adjusted net income was $2.36 per share in the third quarter of 2014, an increase of 12.4 percent compared with adjusted net income of $2.10 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").

"I am encouraged by the strength of our third quarter results and believe we are making the needed investments to support improvements in healthcare affordability and access for all of our customers, across both our Commercial and Government segments. The substantial groundwork we have laid positions us well to capitalize on market opportunities in the future and to serve a growing number of members and their families," said Joseph Swedish, president and chief executive officer.

"Third quarter adjusted earnings per share of $2.36 reflected contributions from a growing membership base across both of our segments. We now project adjusted earnings per share to be within the range of $8.75 - $8.85, and operating cash flow to be greater than $3.3 billion, reflecting a stronger enrollment outlook and a continued focus on controlling healthcare costs for our members," said Wayne DeVeydt, executive vice president and chief financial officer.

CONSOLIDATED HIGHLIGHTS

Membership: Medical enrollment totaled approximately 37.5 million members at September 30, 2014, an increase of approximately 2.0 million members, or 5.7 percent, from 35.5 million at September 30, 2013. Commercial & Specialty Business enrollment increased by 1.3 million medical members as the company experienced growth in the Local Group, National and Individual markets. Enrollment also grew in the Medicaid and Federal Employee Program business by 754,000 and 10,000, respectively, partially offset by a decline in the Medicare business of 39,000.

Medical enrollment increased by 259,000 members, or 0.7 percent, sequentially during the third quarter of 2014, primarily due to enrollment gains in the Medicaid, Local Group and National businesses, partially offset by a decline in enrollment in the Individual business.

Operating Revenue: Operating revenue was nearly $18.4 billion in the third quarter of 2014, an increase of approximately $752 million, or 4.3 percent, compared with approximately $17.6 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 enrollment in the Medicaid, Individual and Commercial self-funded businesses. These increases were partially offset by a decline in revenues due to the State of New York contract conversion to a self-funded arrangement, as previously disclosed, and a decline in Small Group and Medicare enrollment.

Benefit Expense Ratio: The benefit expense ratio was 82.5 percent in the third quarter of 2014, a decrease of 240 basis points from 84.9 percent in the prior year quarter. The decline was largely driven by an improvement in the Commercial & Specialty Business predominantly due to the impact of additional premium revenue which helps 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 nine months 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 44.0 days as of September 30, 2014, a decrease of 0.8 days from 44.8 days as of June 30, 2014. The decline was due primarily to changes in the timing of claims payments between periods.

SG&A Expense Ratio: The SG&A expense ratio was 16.2 percent in the third quarter of 2014, an increase of 180 basis points from 14.4 percent in the third quarter of 2013. The increase was driven by new fees related to Health Care Reform effective January 1, 2014.

Operating Cash Flow: Third quarter 2014 operating cash flow totaled $606 million, or 1.0 times net income, partially reflecting the timing of payments related to various health care reform fees and better than expected operating results.

Operating cash flow was $3.1 billion, or 1.5 times net income, in the first nine months of 2014, and the company has increased its full year 2014 operating cash flow expectation to greater than $3.3 billion.

Share Repurchase Program: During the third quarter of 2014, the Company repurchased nearly 5.1 million shares of its common stock for $579 million, or a weighted-average price of $114.50. During the first nine months of 2014, the company repurchased approximately 27.6 million shares of its common stock, or 9.4 percent of the shares outstanding as of December 31, 2013, for nearly $2.7 billion, or a weighted-average price of $96.20. As of September 30, 2014, the Company had approximately $1.0 billion of Board-approved share repurchase authorization remaining. On October 2, 2014, the Company’s Board of Directors raised the share repurchase authorization by $5.0 billion to approximately $6.0 billion.

Cash Dividend: During the third quarter of 2014, the Company paid a quarterly dividend of $0.4375 per share, representing a distribution of cash totaling $119.2 million.

On October 28, 2014, the Audit Committee declared a fourth 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 fourth quarter dividend is payable on December 22, 2014, to shareholders of record at the close of business on December 5, 2014.

Investment Portfolio & Capital Position: During the third quarter of 2014, the Company recorded net realized gains on investments totaling $25.7 million, partially offset by other-than-temporary impairment losses totaling $13.8 million. During the third quarter of 2013, the Company recorded net realized gains of $95.4 million, partially offset by other-than-temporary impairment losses totaling $26.2 million.

As of September 30, 2014, the Company’s net unrealized gain position in the investment portfolio was $1,005.6 million, consisting of net unrealized gains on equity and fixed maturity securities totaling $563.4 million and $442.2 million, respectively. As of September 30, 2014, cash and investments at the parent company totaled approximately $2.1 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.

REPORTABLE SEGMENTS

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