UnitedHealth Group Inc. (UNH) reported its second-quarter 2013 earnings of $1.40 per share, higher than the Zacks Consensus Estimate of 1.26 per share. Earnings were also up 7.4% on a year-over-year basis.
Better-than-expected earnings came on the back of lower expenses as well as higher enrollment. Results reflected a solid performance from its health benefits business along with strong growth from Optum segment.
Net income was up 7.4% year over year to $1.44 billion, or $1.40 on a per share basis.
UnitedHealth posted revenues of $30.4 billion, up 11.4% year over year but down from $30.5 billion as per the Zacks Consensus Estimate. The year-over-year increase was an outcome of broad-based organic growth and business expansion in both health care benefits and health care services.
A higher revenue growth rate in governmental benefit program offerings during the quarter led to a 20 basis points increase in UnitedHealth’s medical care ratio increase to 81.5%.
Segment performance
During the reported quarter, UnitedHealth’s health benefits segment – UnitedHealthcare – witnessed revenue growth of 11.0% year over year to $28.3 billion. Earnings from operations remained unchanged at $1.9 billion.
Revenue from the company’s other segments – the health services segment branded as Optum – improved 21% to $8.8 billion on a year-over-year basis. Earnings from operations, however, surged 68% year over year to $536 million. Continued progress on Optum’s plan to accelerate growth and improve margins and productivity by strengthening integration and business alignment aided the improvement.
Membership Enrollment
UnitedHealth ended the quarter with 45 million members, up 9.125 million year-over-year.
Other Highlights of the quarter
During the quarter, UnitedHealth finished the final steps in the acquisition of Amil. The company also raised its quarterly dividend by 32% to a $1.12 per share annually.
Capital Position
Cash flow from operations was $1.5 billion in the quarter, up 8.6% year over year.
UnitedHealth also expects cash flows in a range of $7.2 billion to $7.6 billion for 2013.
The company ended the quarter with debt to equity ratio of 34.6% down 1.6% during the quarter.
Share Repurchases and Dividend
UnitedHealth Group spent $791 million to buyback 13 million shares in the quarter. The company paid $281 million in dividends to shareholders.
2013 Guidance
UnitedHealth increased the lower range of its earlier 2013 EPS forecast. It now expects earnings per share of $5.35 to $5.50. The company reiterated its 2013 revenue expectation of $122 billion.
The company also expects cash flows in a range of $7.2 billion to $7.6 billion.
Our take
UnitedHealth is one of the biggest players in the health insurance industry. The company is considered to be the bellwether for the industry and is the first company to kick start earnings for the health insurance sector. The company has showed a favorable performance for the first half of 2013. It is best placed to benefit from the changing health insurance market. Last week the company announced to double its Accountable Care Contracts to $50 billion by 2017. The company is taking strategic steps for long term growth, which we believe will reap benefit going forward.
UnitedHealth carries a Zacks Rank# 2 (Buy). Other players WellPoint Inc. (WLP), Aetna Inc. (AET), CIGNA Corp. (CI) are also expected to release their second quarter earnings shortly.
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