UnitedHealth Depending on Non-Core Business for Growth

Oct 15, 2015

UnitedHealth Group’s third-quarter profit slipped, but the nation’s largest health insurer still beat Wall Street expectations due partly to fast growth in prescription drug management and other areas outside its core business.

Revenue from the Minneapolis company’s Optum unit, which runs drug coverage and provides technology services, jumped 61 percent to $19.3 billion after UnitedHealth bought Catamaran, a pharmacy benefits manager, in a deal valued at more than $12 billion.

Health insurance is the company’s primary business, but it has been relying more on Optum for growth. That segment also runs clinics and doctor’s offices, and its operating earnings jumped 32 percent to $1.14 billion in the quarter.

Third-quarter earnings fell less than 1 percent to nearly $1.6 billion, or $1.65 per share, in the three months that ended Sept. 30. That compares with earnings of $1.6 billion, or $1.63 per share, in last year’s quarter, when the company had more shares outstanding.

Revenue soared 27 percent to $41.49 billion.

UnitedHealth’s bottom line exceeded expectations. Analysts surveyed by Zacks Investment Research projected, on average, earnings of $1.64 per share on $41.49 billion in revenue.

Costs tied to the Catamaran deal contributed to a 29 percent jump in operating expenses for UnitedHealth, and that chipped away at the insurer’s net income.

UnitedHealth also booked a smaller gain of $150 million in the quarter because claims leftover from previous quarters came in lower than expected, which allowed the company to release money held in reserve. That compares to a gain of $270 million recorded in last year’s quarter.

The lower total means actual claims came in closer to what the insurer had projected.

UnitedHealth also reaffirmed on Thursday its forecast for full-year earnings of $6.25 to $6.35 per share. It has already raised that forecast twice this year.

Analysts expect, on average, earnings of $6.33 per share, according to FactSet.

Shares of UnitedHealth Group Inc. climbed $1.44 to $123.51 in premarket trading.

The stock has already climbed 21 percent since the beginning of the year, while the Standard & Poor’s 500 index has fallen 3 percent.

UnitedHealth Group Inc. is the first insurer to report earnings every quarter. Many see the insurer, a component of the Dow Jones industrial average, as a bellwether for other insurers.

Key UnitedHealth competitors Aetna Inc. and the Blue Cross-Blue Shield insurer Anthem Inc. will report later this month. Both are digesting multi-billion-dollar acquisitions of other health insurers.