Anthem Quarterly Profit Surges
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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowIndianapolis-based Anthem Inc. (NYSE: ANTM) is reporting fourth quarter net income of $507 million, compared to $148 million in the same period a year earlier. The health benefits company, formerly known as WellPoint Inc., also recorded full-year profit of $2.6 billion, up from $2.5 billion in 2013. January 28, 2015
News Release
INDIANAPOLIS, Ind. – Anthem, Inc. (NYSE: ANTM) today announced that fourth quarter 2014 net income was $506.7 million, or $1.80 per share. These results included net gains of approximately $0.07 per share. Net income in the fourth quarter of 2013 was $148.2 million, or $0.49 per share, which included net losses of approximately $0.38 per share.
Excluding the items noted in each period, adjusted net income was $1.73 per share in the fourth quarter of 2014, an increase of 98.9 percent compared with adjusted net income of $0.87 per share in the prior year quarter (refer to page 15 for a reconciliation to the most directly comparable measure calculated in accordance with U.S. generally accepted accounting principles, or “GAAP”).
Full year 2014 net income totaled approximately $2.6 billion, or $8.99 per share, including net gains of $0.14 per share from certain items. Full year 2013 net income was approximately $2.5 billion, or $8.20 per share, including net losses of $0.32 per share from certain items. Excluding the items noted in each period, adjusted net income was $8.85 per share for the full year of 2014, an increase of 3.9 percent from $8.52 per share in 2013 (refer to page 15).
“We are pleased with the solid finish to 2014, which leaves us well-positioned for growth in 2015. Our membership growth in 2014 is encouraging and we remain focused on improving healthcare affordability and quality,” said Joseph Swedish, president and chief executive officer.
“Our fourth quarter results reflect solid underlying performance. Our increased dividend and continued share buybacks demonstrate our strong cash flow outlook and our continued commitment to appropriate capital deployment,” said Wayne DeVeydt, executive vice president and chief financial officer.
CONSOLIDATED HIGHLIGHTS
Membership: Medical enrollment totaled approximately 37.5 million members at December 31, 2014, an increase of approximately 1.8 million members, or 5.2 percent, from 35.7 million at December 31, 2013. Commercial & Specialty Business enrollment increased by 1.1 million medical members as the Company experienced growth in the National, Local Group, and Individual markets. Enrollment also grew in the Medicaid and Federal Employee Program business by 815,000 and 11,000, respectively, partially offset by a decline in the Medicare business of 37,000.
Medical enrollment decreased by 32,000 members, or 0.1 percent, sequentially during the fourth quarter of 2014, primarily due to enrollment losses in the Individual and Local Group businesses, partially offset by an increase in enrollment in the Medicaid business.
Operating Revenue: Operating revenue was nearly $18.8 billion in the fourth quarter of 2014, an increase of approximately $1.1 billion, or 6.4 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 previously disclosed State of New York contract conversion to a self-funded arrangement and a decline in Small Group and Medicare enrollment.
Benefit Expense Ratio: The benefit expense ratio was 84.5 percent in the fourth quarter of 2014, a decrease of 330 basis points from 87.8 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 and improvement in the Medicaid business primarily due to retro rate adjustments recorded during the current year quarter.
Medical claims reserves established at December 31, 2013, developed modestly better than the Company’s expectation during 2014.
Medical Cost Trend: For the full year 2014, underlying Local Group medical cost trend was approximately 6.5 percent. The Company anticipates that medical cost trends will increase by approximately 50 basis points in 2015.
Days in Claims Payable: Days in Claims Payable (“DCP”) was 42.5 days as of December 31, 2014, a decrease of 1.5 days from 44.0 days as of September 30, 2014. The decline was primarily due 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 fourth quarter of 2014, an increase of 120 basis points from 15.0 percent in the fourth quarter of 2013. The increase was driven by new fees related to Health Care Reform effective January 1, 2014.
Operating Cash Flow: Operating cash flow for the fourth quarter 2014 totaled $305 million, or 0.6 times net income. For the full year 2014, operating cash flow totaled nearly $3.4 billion, or 1.3 times net income.
Share Repurchase Program: During the fourth quarter of 2014, the Company repurchased more than 2.8 million shares of its common stock for $343 million, or a weighted-average price of $121.17. For the full year 2014, the Company repurchased more than 30.4 million shares of its common stock, or 10.4 percent of the shares outstanding as of December 31, 2013, for nearly $3.0 billion, or a weighted-average price of $98.52. As of December 31, 2014, the Company had approximately $5.7 billion of Board-approved share repurchase authorization remaining.
Cash Dividend: During the fourth quarter of 2014, the Company paid a quarterly dividend of $0.4375 per share, representing a distribution of cash totaling $117.6 million.
On January 27, 2015, the Board of Directors declared a first quarter 2015 dividend to shareholders of $0.625 per share. On an annualized basis, this equates to a dividend of $2.50 per share. The first quarter dividend is payable on March 25, 2015, to shareholders of record at the close of business on March 10, 2015.
Investment Portfolio & Capital Position: During the fourth quarter of 2014, the Company recorded net realized gains on investments totaling $43.8 million, partially offset by other-than-temporary impairment losses totaling $13.5 million. During the fourth quarter of 2013, the Company recorded net realized gains of $105.5 million, partially offset by other-than-temporary impairment losses totaling $25.8 million.
As of December 31, 2014, the Company’s net unrealized gain position in the investment portfolio was $958.1 million, consisting of net unrealized gains on equity and fixed maturity securities totaling $607.4 million and $350.7 million, respectively. As of December 31, 2014, cash and investments at the parent company totaled approximately $2.7 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
Anthem, 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 the Commercial & Specialty Business segment totale