WellCare Reports In-Line, Falls Y/Y - Analyst Blog

By Zacks | February 14, 2013 AAA

WellCare Health Plans, Inc. (WCG) reported fourth-quarter 2012 earnings of $1.32 per share, in line with the Zacks Consensus Estimate but falling significantly from $2.15 earned in the year-ago quarter. Adjusted earnings of $57.6 million plunged almost 38% from $93.4 million recorded in the fourth quarter of 2011. The decline resulted from higher medical benefit ratio (MBR) in the Medicaid and Medicare Advantage segments, which more than offset higher premium revenue in both the segments, lower MBR in the prescription drugs plan segment and a decline in adjusted administrative expense ratio.

Including all non-recurring items, the company reported net income of $48.8 million or $1.11 per share, down from $85.1 million or $1.96 per share recorded in the prior-year quarter.

Operational Update

During the quarter under review, total revenue of WellCare grossed $1.99 billion, surging 24% from $1.60 billion in the year-ago quarter on the back of higher premiums and investment income. Top line also surpassed the Zacks Consensus Estimate of $1.89 billion.

Premium revenue during the quarter amounted to $2.0 billion, up 24% year over year due to improved premiums from all segments.

Total expenses for the fourth quarter amounted to $1.91 billion; increasing 29% from the prior-year quarter, primarily due to an increase in medical benefits expenses, selling general and administrative expenses, depreciation and amortization and Medicaid premium taxes, partially offset by a decline in interest expense.

The company's adjusted administrative expense ratio plunged 150 basis points to 9.1% in the reported quarter. Total membership for the company increased 4% to about 2.7 million.

Segment Details

Medicaid Segment reported total premium revenue of $1.2 billion, up 22% over the prior-year quarter. However, its MBR deteriorated 490 basis points (bps) to 88.7% over the fourth quarter of 2011, primarily due to the Kentucky Medicaid program.

Medicare Advantage Segment reported total premium revenue of $571.9 million, up 49% over the prior-year quarter. MBR deteriorated by 710 bps to 86.9% over the fourth quarter of 2011.

Prescription Drug Plan Segment reported a 9% year-over-year decline in premium revenues to $212.0 million. MBR improved 20 bps to 66.9% due to lower pharmacy costs.

Full Year Results

For full-year 2012, WellCare's core earnings came in at $215.6 million or $4.92 per share, missing the Zacks Consensus Estimate of $4.96. Results also lagged the prior-year earnings of $291.4 million or $6.73 per share.

WellCare reported net income of $184.7 million or $4.22 per share, declining from $264.2 million or $6.10 per share in 2011. Total revenue for 2012 was $7.41 billion, improving from $6.12 billion in 2011.

Financial Position

WellCare exited 2012 with cash and cash equivalents of $1.10 billion compared with $1.33 billion as of 2011-end. Total assets for the company were valued at $2.68 billion compared with $2.49 billion as of Dec 31, 2011.

Long-term debt obligation in the company's books amounted to $120 million, declining from $135 million as on Dec 31, 2011. As of Dec 31, 2012, WellCare's stockholders' equity totaled $1.32 billion versus $1.12 billion as of 2011-end.

Outlook for 2013

WellCare announced its adjusted net income per share guidance of $4.50-$4.85 for 2013. The company expects premium revenue between $8.7 billion and $8.8 billion

The company expects administrative expense ratio in the band of 8.7%-8.9%.

Other Highlights

WellCare's Kentucky Medicaid Program Agreement was recently amended by the commonwealth of Kentucky, leading to a 7% hike in Medicaid premium rate from the state, in effect from Jan 1, 2013. Moreover, the state also preponed the 3% rate increase scheduled for Oct 2013 to Jul 1, 2013.

On Feb 12, 2013, WellCare expanded its senior secured credit agreement by $230 million. Additionally, the company raised $230 million under its term-loan facility.

Results at Other HMOs

Coventry Health Care Inc. (CVH) reported fourth-quarter 2012 operating earnings per share of 88 cents, which surpassed the Zacks Consensus Estimate of 67 cents as well as the prior-year earnings of 60 cents. Coventry reported net income of $119.3 million compared with $85.7 million in the prior-year quarter.

Another health maintenance organization (HMO), WellPoint Inc. (WLP) reported fourth-quarter 2012 adjusted income of $1.03 per share, beating the Zacks Consensus Estimate of 95 cents. Adjusted income also surpassed the year-ago earnings of 99 cents per share by 4%.

UnitedHealth Group Inc. (UNH) reported fourth-quarter 2012 earnings of $1.20 per share, in line with the Zacks Consensus Estimate. Earnings, however, increased 2.6% on a year-over-year basis.

Zacks Rank

WellCare carries a Zacks Rank #4 (Sell).

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