UnitedHealth Group’s (UNH) fourth quarter earnings of 81 cents per share were well ahead of the Zacks Consensus Estimate of 73 cents. Results were also ahead of the prior-year period’s earnings of 60 cents. The better-than-expected results reflected strong contributions from the health services businesses and the public and senior health benefits program.
For the full year, revenue rose to $87.14 billion from $81.19 billion in the prior year. Earnings per share came in at $3.24, ahead of the management’s guidance of $3.15.
Total revenues during the quarter increased 6.5% year-over-year to $21.8 billion. The increase was primarily driven by an increase in premium revenues in the Health Care Services segment due to strong organic growth in risk-based offerings in public and senior markets businesses and premium rate increases in response to growth in underlying medical costs.
Medical costs during the quarter increased 6.8% year-over-year to due to a growth in public and senior markets risk-based businesses and elevated medical costs. Total operating cost during the quarter increased 5.4% year-over-year to $20.2 billion.
In the commercial side of the business, in addition to decreasing enrollment, UnitedHealth faces the flow-through of members selecting lower-premium or higher deductible plans. Commercial enrollment dropped 6.5% during the quarter at 24.6 million people. While enrollment in government programs (Medicare and Medicaid) increased 12.5%, it tends to be less profitable in general. We see recovery from this headwind as a multi-year process.
For 2010, management reaffirmed its earnings expectation in the range of $2.90–$3.10 per share.
UnitedHealth Group is one of the most diversified of the listed managed care companies. With a broad product and service offering, the company targets the full spectrum of the population. As a result, earnings are buffered to a certain degree against any single change in market dynamics. Though the market remains challenging, we expect the company to grow revenues, albeit at a slower rate.
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