UnitedHealth Group Revenues Climb in Q1, but Profits Drop 14 Percent

Andrew Klips  |

UnitedHealth Group Inc. (UNH) Thursday morning reported a drop in first-quarter profits on increased medical costs and tighter government spending, although a rise in membership helped offset those factors. The largest managed-care company by revenue, UnitedHealth is the first in the industry to report earnings, perhaps setting a trend from things to come from peers like Humana (HUM) and Aetna (AET). The industry got a lift earlier this month after the Centers for Medicare and Medicaid surprised by saying it would raise its reimbursement rate by 3.3 percent in 2014 instead of cutting it.

For the quarter, UnitedHealth reported an increase it revenue to $30.3 billion, compared to $27.3 billion in the first quarter of 2012. Net profit totaled $1.19 billion, or $1.16 per share, 14 percent lower than last year’s $1.39 billion, or $1.31 per share.

Wall Street was expected the Minnetonka, Minnesota-based company to report earnings per share of $1.14 on revenue of $30.54 billion.

The company had a tall order to meet the year prior quarter earnings, a period where it booked $530 million in gains from claims left over from prior quarters. The latest quarter only recorded a $280 million gain from claims rolling-over from prior periods.

The first quarter income tax rate of 36.8 percent increased 80 basis points year-over-year, directly due to Affordable Care Act provisions.

The quarter ended with UnitedHealth serving 86 million people, up from 75.1 million people a year earlier.

Subscribe to get our Daily Fix delivered to you inbox 5 days a week

“This quarter provided a solid start to 2013 across our diversified health care businesses,” said Stephen J. Hemsley, president and chief executive of UnitedHealth. He added, “Looking forward, innovation and continuing discipline in advancing consistent care quality and medical and operating cost management will be critical to fulfilling the market’s demands for greater health care value, as the pressures of reform and chronic under-reimbursement continue in federal programs serving seniors and individuals and families with lower incomes.”

During the quarter, the company bought-back 10 million shares for an aggregate amount of $543 million and paid $216 million in dividends.

Meanwhile, UnitedHealth reaffirmed its guidance for the full year, saying it still expects earnings per share in the range of $5.25 to $5.50, even though April 1 sequestration cuts were not included in the guidance. Analysts were expecting $5.52 per share.

UnitedHealth also noted in today’s statement that the first-quarter revenue growth included a conversion of a “very large” public sector customer from risk-based to fee-based benefits. The conversion was not part of the prior guidance for 2013 of sales between $123 billion and $124 billion. The company said it expects the conversion to shorten revenue to $2.5 billion. As such, the company revised its revenue outlook for 2013 down to $122 billion.

Shares of UNH are up about 15 percent so far in 2013, fueled in part by an April surge following the Medicare rate decision. Shares closed down on Wednesday by 1.2 percent at $62.03 and are looking to open slightly lower on Thursday with the earnings report not dazzling anyone.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.


Symbol Last Price Change % Change