WellPoint Profit Up 11%, Helped by Cost Controls

WellPoint posted an 11% rise in quarterly profit Wednesday, matching Wall Street's expectations, as the largest U.S. health insurer by enrollment improved its control of administrative costs and saw a boost from net investment income.

WellPoint also spent less on medical costs in the second quarter as a percentage of premiums than it did in the first quarter, which could soothe investors after rival UnitedHealth Group alarmed investors in that regard in its earnings report.

But the company lowered its forecasts for health plan membership and revenue after it said enrollment fell from the first quarter amid sequential declines for its national accounts business.

Goldman Sachs analyst Matthew Borsch said in a research note that the quarterly results looked solid, but the outlook appeared "a bit sluggish" and was awaiting more details from the company on its conference call with analysts.

Net income rose to $835.2 million, or $1.35 per share, from $751.2 million, or $1.17 per share, a year earlier. The earnings results matched the analysts' average forecast, according to Reuters Estimates.

Revenue rose 7.7% to $15.3 billion.

WellPoint, which operates many Blue Cross Blue Shield plans, is looking to reassure investors about its direction after replacing its chief executive and chief financial officer in recent months.

Membership in WellPoint's health plans rose by 604,000 from a year ago to 34.8 million.

However, membership fell by 108,000 members from the first quarter, hurt by greater-than-expected declines in the company's national accounts business. WellPoint cited employee reductions in various industries, including the automobile, home building and mortgage sectors.

The company's benefit expense ratio -- the percentage of premium dollars spent on medical costs -- worsened to 81.8% from 81.2% a year earlier.

But the ratio, which is considered a key measure of profitability, improved from the 83.1% the company had reported for the first quarter.

Improvement in the company's business serving employers was countered by continued increases in medical costs in its Medicaid plans serving low-income Americans, particularly in California and Connecticut. WellPoint is the largest U.S. provider of Medicaid plans.

Net investment income rose 16% to $253.4 million.

WellPoint's sales, general and administrative expenses improved to 15.1% of revenue from 15.7% a year ago.

WellPoint forecast full-year earnings of $5.55 per share, also in line with Wall Street's target.

The company lowered its year-end medical enrollment target to 35.1 million from 35.5 million previously. It also cut its full-year operating revenue target to about $60.5 billion from its earlier projection of about $61.1 billion.

Shares of the Indianapolis-based company have risen about 4% this year, roughly in line with the Morgan Stanley Healthcare Payor index.