UnitedHealth 3Q profit falls but eases analysts

MINNETONKA — UnitedHealth Group Inc. reported a 28 percent drop in third-quarter profit Thursday, but the insurer also reassured Wall Street with a performance that met or surpassed expectations in several areas.

Minnetonka, Minn.-based UnitedHealth said net earnings fell to $920 million, or 75 cents per share, in the quarter ending Sept. 30, down from $1.28 billion, or 95 cents per share, in the same quarter last year. This was driven in part by higher operating costs.

But the second-largest U.S. health insurer also said revenue rose 8 percent to $20.2 billion from $18.7 billion a year ago.

Its adjusted profit was 73 cents per share, excluding a 2-cent benefit from a change in the estimate of net costs to settle a couple stock option-related lawsuits.

That matched Wall Street expectations. Analysts polled by Thomson Reuters also expected $20.04 billion in revenue.

The profit drop surprised few on Wall Street.

UnitedHealth went through some service problems that led to enrollment losses earlier this year, said Ana Gupte, an analyst with Sanford C. Bernstein & Co. She also noted that the insurance sector has been struggling with pricing and medical cost trend issues.

"The market did not expect anything beyond what was reported in the quarter, so they were pleased that the Street's expectations were met," she said.

UnitedHealth saw total operating costs rise 12 percent to $18.6 billion, mainly because of an 11 percent rise in medical costs. The company also took a 3-cents-per-share charge in the quarter related to settlements of some class-action lawsuits over options backdating.

UnitedHealth CEO Stephen Hemsley said during a conference call the company's $20 billion investment portfolio did well on a relative basis, and the insurer had only small positions in casualties of the financial meltdown like Lehman Brothers and American International Group Inc.

Hemsley assured analysts the company's financial position remains strong "and we are committed to keeping it that way."

"We focus on earnings from the products and services we offer and seek to maintain a capital structure that is both prudent and efficient," he said.

UnitedHealth normally is the first large managed-care company to release earnings each quarter. Wachovia analyst Matt Perry said in a note the results "mark a solid start to the managed care reporting season."

"We think it's possible that the weak economy could cause lower demand for health care consumption," which would help managed-care companies, he said.

UnitedHealth shares rose 96 cents, or 4.4 percent, to $22.63 Thursday.

The stock's movement mirrored a turbulent day on Wall Street. The company's conservative outlook for next year probably also contributed, Gupte said.

UnitedHealth executives said for the first time Thursday they expect 2009 earnings per share to fall between $2.90 and $3.15.

Stifel Nicolaus analyst Tom Carroll said he thinks underwriting margins will be flat or remain under pressure in the new year.

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