WellPoint cuts 2008 forecast after profit slumps

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The largest U.S. health insurer by membership cited higher medical costs in sharply lowering its outlook for the second time since March. Its first profit warning sparked a broad sell-off among health insurers and led to speculation by some analysts that the industry has entered a cyclical downturn.

NEW YORK (Reuters) - WellPoint Inc <WLP.N> said on Wednesday first-quarter profit slumped a steeper-than-expected 25 percent on high medical costs, mainly in its Medicare plans for the elderly. The health insurer also further cut its 2008 forecast.

The largest U.S. health insurer by membership cited higher medical costs in sharply lowering its outlook for the second time since March. Its first profit warning sparked a broad sell-off among health insurers and led to speculation by some analysts that the industry has entered a cyclical downturn.

WellPoint shares fell 5.7 percent to $43.90 in premarket trading from Tuesday's close of $46.55 on the New York Stock Exchange.

Investor confidence in the industry has crumbled this year, as companies have projected weaker outlooks citing specific issues and broad factors such as the weaker U.S. economy. WellPoint's results come a day after rival UnitedHealth Group <UNH.N> also cut its 2008 profit forecast.

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WellPoint's first-quarter net income fell to $588.1 million, or $1.07 per share, from $783.1 million, or $1.26 per share, a year earlier. Analysts on average expected $1.18 per share, according to Reuters Estimates.

Goldman Sachs analyst Matthew Borsch said the earnings miss would have been larger if not for non-operating items that helped results.

"From that perspective, earnings quality was poor," Borsch said in a research note.

"However, the already-pummeled valuation will likely limit the extent of downside and as some investors look for this second drop to guidance to be the last for 2008," Borsch said.

Revenue rose 3.5 percent to $15.4 billion.

The company's benefit expense ratio -- the percent of premiums spent on medical costs -- worsened to 85.1 percent from 83.1 percent a year ago. Most of that stemmed from costs under its Medicare plans.

The company's senior business incurred a first-quarter operating loss of more than $200 million.

WellPoint's membership rose 1.4 percent to about 35.4 million, driven by increases in its national business.

WellPoint forecast full-year profit of $5.42 per share to $5.67 per share. Analysts had expected $5.74.

In March, the company had projected 2008 profit of $5.76 to $6.01 per share. That forecast had been reduced from its prior view of $6.41 per share, so the company has now cut its forecast as much 15 percent over that time.

Shares of the Indianapolis-based company are off about 47 percent in 2008, compared with a 36 percent drop for the Morgan Stanley Healthcare Payor index <.HMO>.

(Reporting by Lewis Krauskopf; Editing by Derek Caney and Maureen Bavdek)