WellPoint 1Q profit drops, missing Wall Street estimates

INDIANAPOLIS — Rising medical costs and pricing problems pushed WellPoint Inc.'s first-quarter profit down 25 percent, missing Wall Street expectations. The health insurer cut its full-year outlook Wednesday for the second time in about a month.

But its shares rose more than 7 percent Wednesday. Analyst Tom Carroll said expectations for WellPoint were low and its stock fell a day earlier when rival UnitedHealth Group Inc. missed Wall Street estimates and cut its full-year outlook.

"Everything was off (Tuesday) quite a bit," said Carroll, who covers both companies for Stifel Nicolaus & Co. Inc. "Basically United was driving everything down."

Indianapolis-based WellPoint is one of the nation's biggest health insurers. It operates Blue Cross and Blue Shield plans in several states and has more than 35 million members.

WellPoint reported Wednesday that its earnings dropped to $588.1 million, or $1.07 per share, from $783.1 million, or $1.26 per share, a year earlier. Investment losses of 6 cents per share hurt results.

Revenue rose 3 percent to $15.55 billion from $15.09 billion.

Analysts polled by Thomson Financial forecast earnings of $1.19 per share on $15.4 billion in revenue.

"We have been very focused on understanding why we are not achieving the growth rate we previously expected and are implementing corrective actions based on what we've learned," CEO Angela Braly told analysts during a Wednesday conference call.

The company's benefit expense — or medical cost — ratio, which is the company's percentage of medical expenses over premium revenue, rose to 85.1 percent, up from 83.1 percent the previous year. WellPoint leaders traced much of that increase to its senior business, which lost $200 million in the quarter.

"Performance in our senior business was well below expectations," Braly said.

It also had a "much larger negative impact" than Wachovia Securities expected, analyst Matt Perry said in a report.

"(WellPoint's) commercial business results were weak, but this also looks to be the result of company specific mis-pricing," Perry wrote.

Goldman Sachs analyst Matthew Borsch said in another report that WellPoint missed expectations because of its rising medical cost ratio, but was encouraged by the company's strengthening of its reserves.

The company cut its 2008 earnings per share outlook to between $5.42 to $5.67, including 6 cents of investment losses, from a revised range of $5.76 to $6.01. Analysts currently forecast $5.73 per share.

WellPoint first lowered its full-year profit forecast last month, when it dropped from $6.41 per share. The company cited medical costs, lower health plan enrollment and the weak economy then.

Carroll said many analysts expected the second forecast cut because they felt company officials did not have a good grasp on medical cost trends.

WellPoint's earnings marked the first quarterly profit drop since the last quarter of 2004, when the company was created by the combination of Anthem Inc. and WellPoint Health Networks Inc.

Its shares rose $3.39 to $49.94 Wednesday. They are still well below the $87 price they started at this year.

Back To Top

	Eli Lilly 1Q profit doubles, but falls short of expectations	Associated Press	Mon Apr 21	0
	Boeing profit jumps 38 pct as orders grow in 1st quarter	Associated Press	Wed Apr 23	0
	EMC 1Q profit dips 14 percent, revenue up 17 percent	Associated Press	Wed Apr 23	0
	Amazon 1Q profit rises; investors still worry about economy	Associated Press	Wed Apr 23	0
	Schering 1Q profit drops 48 pct mostly from takeover costs	Associated Press	Wed Apr 23	0