Legal charges and rising cost drives down United Health profit
23 01 09 - 11:34
UnitedHealth 4Q profit falls, meets expectations
By TOM MURPHY – Associated Press
INDIANAPOLIS (AP) — UnitedHealth Group Inc. stock rose briskly Thursday morning after the health insurer reported fourth-quarter adjusted earnings that met Wall Street expectations and revenue that beat them.
The Minnetonka, Minn.-based insurer said profit fell 40 percent when compared with the same quarter last year, as the company settled a class-action lawsuit and dealt with rising expenses. But revenue rose 9 percent to $20.45 billion.
The company reported net income of $726 million, or 60 cents per share, compared with $1.22 billion, or 92 cents per share, from the same quarter last year.
UnitedHealth Chief Executive Stephen Hemsley told analysts during a conference call that the economy remains challenging, but his company's financial position is strong.
"We have been careful stewards of our resources, and our operating cost and capital control efforts that started early in 2008 will continue in their intensity," he said.
The struggling economy has hurt insurance companies by triggering investment losses and enrollment declines as employers trim jobs and reduce the number of people covered by their insurance.
UnitedHealth's fourth-quarter earnings were affected by a charge of 18 cents per share to resolve a class-action lawsuit over out-of-network medical services. The insurer said last week it would pay $350 million to settle the litigation, which focused on pricing databases operated by its Ingenix subsidiary.
In the fourth quarter, UnitedHealth also recorded a charge of 3 cents per share for a $50 million venture-capital investment writedown. It saw medical expenses rise 11 percent to $15 billion. Operating costs shot up 29 percent to $3.5 billion.
The medical care ratio for its UnitedHealthcare business rose just under 1 percentage point to 83.5 percent, as medical cost increases outpaced premiums. The ratio shows the share of premium revenue that's paid out in medical claims.
UnitedHealth's adjusted profit of 78 cents per share matched expectations of analysts polled by Thomson Reuters, and its revenue surpassed analyst expectations of $20.4 billion.
Goldman Sachs analyst Matthew Borsch said in a Thursday morning research note the results "bolster our positive view of the turnaround" at UnitedHealth. He holds a "Buy" rating on the stock.
UnitedHealth's stock rose $1.85, more than 7 percent, to $26.90 Thursday morning.
The company also said Thursday it will maintain its outlook for 2009 earnings of $2.90 to $3.15 per share.
"We see evidence of strengthening sales momentum, but we need further information on retention business mix before we can make any changes to this forecast," Hemsley said.
Total commercial health insurance enrollment, which doesn't include Medicaid and Medicare business, dropped by 125,000 people in the fourth quarter but rose by 800,000 to 26.3 million during the full year.
For 2008, UnitedHealth's profit fell 36 percent to $2.98 billion, or $2.40 per share, from $4.65 billion, or $3.42 per share, in 2007. Full-year revenue rose 8 percent to $81.2 billion.