WellPoint Inc posted higher-than-expected quarterly profit on Wednesday on better performance of its health plans for small businesses and it raised its full-year outlook, the latest in a string of strong second-quarter earnings reports for U.S. health insurers.
WellPoint's report comes after Aetna raised its outlook late on Tuesday, although analysts expect a muted reaction to the industry's earnings as fears over the impact of the new healthcare reform law weigh on shares.
Some investors also may be disappointed in Aetna's announcement on Tuesday that it would contract its pharmacy benefit services with CVS Caremark Corp , as opposed to selling its drug-benefit business outright. WellPoint sold its drug benefit business last year for $4.68 billion to Express Scripts Inc .
It feels to us like WellPoint got the better deal on its PBM transaction. Citigroup analyst Carl McDonald said in a research note. Unless Aetna can explicitly quantify meaningful near-term synergies from this transaction ... we think the market reaction will be negative.
WellPoint, the largest U.S. health insurer by membership, said net income rose 4.2 percent to $722.4 million, or $1.71 per share, compared with $693.5 million, or $1.43 per share, a year earlier.
Excluding items, earnings of $1.67 per share topped analysts' average estimate by 12 cents, according to Thomson Reuters I/B/E/S.
The beat relative to our expectations was primarily due to better-than-expected medical costs from a less-than-severe flu season and medical utilization, Sanford Bernstein analyst Ana Gupte said in a research note.
Revenue slipped nearly 7 percent to $14.22 billion. Analysts looked for $14.61 billion.
Profit in WellPoint's commercial business jumped 28 percent to $745.7 million, helped by improvement in its plans serving small employers.
Profit in its consumer business fell 21 percent to $300.9 million, as WellPoint cited a delay in implementing rate increases for its individual plans in California and weaker performance by its Medicare Advantage plans.
WellPoint last month sought to defuse a controversy over its rates in California by filing for a lower rate hike in the state.
It had pulled its initial request for an average 25 percent increase, which drew heavy criticism from Democrats earlier this year, when errors were found. However, WellPoint has said it expects to lose money this year on its individual business in California with this latest rate increase.
For the year, WellPoint forecast earnings of at least $6.30 per share, up from its prior outlook of at least $6.00.
Last week, UnitedHealth Group Inc , the largest health insurer by market value, also raised its profit forecast after posting far higher-than-expected quarterly profit.
After Aetna's pharmacy benefit decision, the focus will likely switch to Cigna Corp as the only remaining major health insurer with a pure pharmacy benefit unit, according to Goldman Sachs analyst Matthew Borsch.
(Reporting by Lewis Krauskopf; Editing by Derek Caney)