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WellCare Misses Earnings Est, Sales Beat

WellCare Health Plans, Inc. (WCG - Snapshot Report) reported first-quarter 2013 adjusted operating earnings of 63 cents per share, falling significantly from $1.32 earned in the year-ago quarter. Results also lagged the Zacks Consensus Estimate of 69 cents per share.

The year-over-year decline was due to higher medical benefit ratio (MBR). The year over year increase in MBR resulted from lower favorable development of prior years’ medical benefits payable recognized in the reported quarter of 2013 relative to the prior-year period. Additionally, higher Medicare segment MBR and change in the seasonal pattern of the Medicare Prescription Drug Plan (PDP) segment MBR and increased flu occurrence in 2013 more than offset the growth in premium revenue.

Including all non-recurring one-time items, WellCare reported net income of $21.5 million or 49 cents per share, down from $51.2 million or $1.18 per share recorded in the prior-year quarter.

Operational Update

During the quarter under review, total revenue of WellCare grossed $2.3 billion, surging 26% from $1.8 billion in the year-ago quarter on the back of higher premiums, and investment and other income. Top line also surpassed the Zacks Consensus Estimate of $2.2 billion.

Premium revenue during the quarter amounted to $2.2 billion, up 26% year over year. Total expenses for the first quarter amounted to $2.2 billion; increasing 30.5% from the prior-year quarter, primarily due to an increase in medical benefits expenses, selling general and administrative expenses, Medicaid premium taxes, and interest expense. Medical benefits expense for the first quarter increased 31% year over year to $2 billion.

WellCare’s adjusted administrative expense ratio increased 20 basis points year over year to 8.6% in the reported quarter. The year-over-year increase was mainly due to growth initiatives which include acquisition integration costs and also service and technology investments. Total membership for WellCare increased 7% year over year to about 2.7 million.

Segment Details

Medicaid Segment reported total premium revenue of $1.3 billion, up 22% over the prior-year quarter owing to membership growth. However, its MBR increased 200 basis points (bps) to 87.7% in the first quarter of 2013.
Medicare Advantage Segment reported total premium revenue of $719 million, up 64% over the prior-year quarter. Results were driven by acquisitions by WellCare in California and Arizona and also from organic sales activity. MBR increased 820 bps year over year to 87% in the first quarter of 2013.

Prescription Drug Plan Segment reported a 19% year over year decline in premium revenues to $223 million due to a decline in memberships and due to the effect of the 2013 bids. MBR increased 470 basis points to 103.6% in the quarter due to the enhanced Prescription Drug Plan and greater than expected memberships in the plan.

Financial Position

WellCare exited the quarter with cash and cash equivalents of $1.38 billion compared with $1.10 billion as of Dec 31, 2012. Total assets for the company were valued at $2.99 billion compared with $2.68 billion as of Dec 31, 2012.  Net cash from operations increased 275.4% year over year to $31.1 million in the first quarter.

Long-term debt obligation in WellCare’s books amounted to $317.5 million, up 164.6% from $120 million as of Dec 31, 2012. As of Mar 31, 2013, WellCare’s stockholders’ equity totaled $1.35 billion versus $1.32 billion as of 2012-end.

Outlook for 2013

WellCare announced its adjusted net income per share guidance of $4.60–$4.90 for 2013. The company expects premium revenue between $8.9 billion and $9 billion.  WellCare expects adjusted administrative expense ratio in the band of 8.7%–8.9%.

Results at Other Healthcare Companies

UnitedHealth Group Inc. (UNH - Analyst Report) reported its first-quarter 2013 earnings of $1.16 per share, in line with the Zacks Consensus Estimate. Earnings, however, declined 11.4% on a year-over-year basis.

Coventry Health Care Inc. reported first-quarter 2013 operating earnings per share of $1.00, which surpassed the Zacks Consensus Estimate of 79 cents as well as the prior-year earnings of 62 cents.

WellPoint Inc. reported first-quarter 2013 adjusted income of $2.94 per share, beating the Zacks Consensus Estimate of $2.37. Adjusted income also surpassed the year-ago earnings of $2.34 per share by 25.6%.

Zacks Rank

WellCare carries a Zacks Rank #3 (Hold).

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