In the wake of disappointing earnings that dinged the stock and sharpened questions about the company’s direction, WellPoint Inc.’s WLP -12.06% board made an unusual statement of support for the insurer’s leadership under CEO Angela Braly.
The board “has been fully involved in the strategy WellPoint is pursuing and is supportive of the strategy and our management team,” WellPoint’s lead independent director, Jacquelyn Ward, told The Wall Street Journal in a statement.
On Wednesday, WellPoint announced second-quarter earnings that fell 8.3% from a year earlier and lowered its guidance for the year. Erosion in the Indianapolis-based company’s membership ranks emerged as a key factor behind a cutback in guidance for 2012 to between $7.30 and $7.40 a share from a projection of at least $7.57. The company also cited pricing pressures in certain markets as well as the effects of corporate customers reducing the number of people they covered. And WellPoint saw an uptick in consumers’ use of some medical care.
Pricing pressure is expected to be a concern across the industry, but WellPoint’s leadership had already been under scrutiny from investors, who have questioned the company’s performance in the wake of some stumbles, including an unexpected earnings hit last year tied to problems with a Medicare plan in California, which the company has said have now been resolved. In 2010, the company scaled back a proposed rate increase in California that had become a lightning rod in the policy debate over a health overhaul, leading to a loss.
Ms. Braly, who is the board’s chair as well as chief executive and president, has been CEO since 2007, but there has been considerable turnover in the top executive ranks. According to a tally issued by analyst Justin Lake in February, when he was with UBS, WellPoint then had lost six of the 12 executives who had been at its top several years before.
Carl McDonald, an analyst with Citigroup Investment Research, said in a note early Wednesday that several large shareholders “were already frustrated by WellPoint,” and the company’s shares have fallen 25% in the past five years, compared with an 8% increase at rival UnitedHealth Group Inc. UNH -4.41%
WellPoint shares fell 12% to $54.01 in 4 p.m. trading Wednesday on the New York Stock Exchange, marking the stock’s lowest close since September 2010, and helping to drag down the rest of the managed-care sector.
“The bottom line is that this management team has had a recurring series of missteps, and you don’t know where the next one’s coming from,” said Marshall Gordon, a buy-side analyst with ClearBridge Advisors, a unit of Legg Mason Inc. that currently holds WellPoint shares. “You have to ask real questions about their ability to execute on the core business and their ability to communicate with the Street.”
On the company’s call with analysts, Ms. Braly was questioned about the WellPoint board’s view of the company’s performance and strategy, and said it’s “clear that they’re excited about the strategy, no doubt about it.” She said the board has been supportive of WellPoint’s recent acquisitions of 1-800 Contacts Inc. and its roughly $4.46 billion cash deal to buy Medicaid-focused Amerigroup Corp., a purchase that has also generally won kudos from analysts.
In response to a question from The Wall Street Journal, Ms. Ward backed up Ms. Braly in a statement, which was relayed through a WellPoint spokeswoman. Ms. Ward also said the company’s “management regularly provides updates to the board regarding performance, including today’s announcement concerning expected 2012 results.”
WellPoint said its second-quarter net income, weighed down by litigation and acquisition costs, fell to $643.6 million from $701.6 million a year earlier. But per-share earnings rose to $1.94 from $1.89 because of fewer shares outstanding in the most-recent quarter. Excluding items, such as net investment gains and litigation and acquisition costs, per-share earnings rose to $2.04 from $1.83. Revenue rose 2% to $15.17 billion. Analysts polled by Thomson Reuters had forecast earnings of $2.08 a share on revenue of $15.27 billion.
“We’re disappointed with the need to lower our guidance, but believe it’s the right action to take, given the challenging marketplace we see, our commitment to maintaining pricing discipline, and our intention to continue investing for the strong future growth opportunity ahead of us,” Ms. Braly said in the call with analysts.