Bloomberg News

UnitedHealth Drops After CEO Predicts Weaker First Quarter

January 24, 2012

(Updates with closing share price in the third paragraph.)

Jan. 19 (Bloomberg) -- UnitedHealth Group Inc.’s next quarter won’t be as good as the one reported today, Chief Executive Officer Stephen Hemsley said in comments that dropped the shares of the top U.S. health insurer by sales.

Fourth-quarter earnings were 21 percent higher than a year earlier, beating analysts’ estimates, the Minnetonka, Minnesota- based company said in a statement. The insurer enrolled 175,000 new members and kept costs under control, according to the statement.

Investors had been watching to see whether UnitedHealth would continue to save money on medical costs in the first full year after President Barack Obama signed the health-care overhaul into law. The shares fell 3 percent to $52.32 at the close in New York, after Hemsley suggested the law would create new pressures on revenue in 2012.

“Our plans include a sequentially lower first quarter,” Hemsley said during a call today with analysts and investors.

UnitedHealth expects to invest money to comply with the health-care overhaul as reimbursements for medical care come under pressure, he said. The company also expects people to use the medical system more, Hemsley said.

Insurers Decline

The comments spurred a sharp turnaround in the company’s stock, which had initially risen as a result of the fourth- quarter earnings statement. Health insurers, including WellPoint Inc., Aetna Inc. and Cigna Corp. also fell. UnitedHealth led a 1.7 percent decline in the six-member Standard & Poor’s 500 Managed Health-Care Index.

“They’re big and they’re national and they’re in every marketplace, so their performance reflects what’s going on nationally with health insurers,” said Dave Shove, an analyst with Bank of Montreal in New York. He has an “outperform” rating on UnitedHealth.

UnitedHealth reported net income climbed to $1.26 billion, or $1.17 a share, beating by 13 cents the average estimate of 20 analysts surveyed by Bloomberg. Revenue rose 7.9 percent to $25.9 billion.

Profit for UnitedHealth, the first major health insurer to report, has exceeded the average estimate of analysts for 12 quarters, according to data compiled by Bloomberg. The insurer reiterated a 2012 forecast for profit of $4.55 to $4.75 a share.

Higher Enrollment

The higher membership in the fourth quarter was driven by increases in enrollment for Medicaid and Medicare, and growth in commercial membership, the company has said. Medicare is the U.S. plan for the elderly and disabled, and Medicaid is the joint state-federal program for the poor.

“They’re setting themselves up with a strong membership base for 2012,” said Sheryl Skolnick, an analyst with CRT Capital Group in Stamford, Connecticut, in a telephone interview. “To show any growth at all in either of those commercial business lines in the fourth quarter is impressive.”

UnitedHealth is expanding services including mobile technology and consulting. In November, the company purchased XL Health Corp., a provider of managed care for chronically ill Medicare members, to gain customers as insurers face heavier regulation.

WellPoint, the largest U.S. health insurer by membership, is scheduled to report earnings on Jan. 25.

--Editors: Bruce Rule, Andrew Pollack

To contact the reporter on this story: Sarah Frier in New York at sfrier1@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net


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