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pww.comUnitedhealth Group, Inc., Q3 2008 Earnings Call, Oct-16-2008 - NYSE:UNH

NYSE:UNH

Stephen Hemsley [Executives] 💬

Stephen Hemsley, the President and CEO of UnitedHealth Group, provided a comprehensive overview of the company's third quarter 2008 performance and outlook for the fourth quarter and 2009. Here’s a detailed summary of his remarks:

Third Quarter 2008 Highlights

  • Financial Performance: Reported earnings per share of $0.75, in line with expectations.
  • Balance Sheet Strength: The balance sheet is strong, with a conservative investment portfolio consisting of highly liquid securities and a high cash position.
  • Capital Gains: Realized a net capital gain of $58 million on the investment portfolio year-to-date.

Financial Details

  • Earnings Impact: Third quarter earnings per share of $0.75 included:
    • $0.02 per share in net capital losses.
    • $0.03 per share for estimated costs to resolve a legal matter.
    • $0.02 per share benefit from changes in the estimated net cost to settle class action lawsuits.
  • Enrollment Growth: Better than projected growth in most enrollment categories.
  • Clinical Care and Operating Costs: Improvements observed in clinical care and operating cost trend.

Fourth Quarter Outlook

  • Projected Earnings: Projected net earnings in the range of $0.77 to $0.80 per share, without projecting significant capital gains or losses.

Balance Sheet and Liquidity

  • Cash Flows: Generated $2.4 billion in cash flows from operations, consistent with the full-year outlook of approaching $5 billion.
  • Debt Ratio: Reduced debt to debt plus equity ratio from 40.4% to 39.2%.
  • Commercial Paper Market: Regular participation in the commercial paper market, with less than $600 million outstanding at the end of the quarter.
  • Liquidity and Debt Refinancing: Plans to refinance term debt totaling $900 million by the end of Q1 2009 and $450 million in Q3 2009.

Investment Portfolio

  • Performance: The investment portfolio performed well, with small positions in troubled issuers.
  • Realized Losses: Net realized losses of $45 million, including losses from sales and impairments.
  • Portfolio Composition: Highly liquid, diversified, and characterized by strong credit quality, with over 80% rated AA or higher.

Capital Levels

  • Regulated Capital: Over $10 billion at September 30, projected to increase to approximately $11 billion by year-end.
  • Excess Regulatory Capital: Expected to be at 580% or $9 billion above the minimum regulatory risk-based capital level.

Business Performance

  • Health Benefits Businesses: Earnings from operations of $1.2 billion, an increase of over $100 million from Q2 2008, with an overall operating margin improvement to 6.8%.
  • UnitedHealthcare Commercial Benefits: Risk-based enrollment grew on a same-store basis. Fee-based business declined due to employment attrition.
  • Medical Care Ratio: Increased by 10 basis points to 83%, slightly better than projected.
  • Operational Improvements: Progress in engaging more closely in local markets, improving service and resolution disciplines, and implementing cost reduction efforts.

Senior Health Benefits Businesses

  • Ovations: Medicare Advantage business grew by 25,000 people, with organic year-to-date growth of 80,000 and total growth of 110,000 members.
  • Medicare Supplement: Year-to-date growth of 110,000 members.
  • Medicare Part D: Grew by 20,000 members in the third quarter.

Medicaid Business (AmeriChoice)

  • Membership Growth: Total Medicaid membership grew by 85,000 people in the quarter, bringing year-to-date expansion to 630,000 people.
  • Market Wins: Recent wins position the company for strong growth and performance in 2009.

Services Businesses

  • OptumHealth, Ingenix, and Prescription Solutions: Combined third quarter revenues of $4.7 billion, with a 3.5% increase in earnings from operations to $323 million.

Outlook for 2009

  • Economic Climate: Assumes challenging employment levels and accelerated member attrition.
  • Pricing Discipline: Continues to focus on disciplined pricing in both risk and non-risk benefit products.
  • Membership Projections: Expects lower membership in both categories entering 2009.
  • Medicare and Medicaid: Better positioned entering 2009 but uncertain about ultimate membership mix.
  • Medical Cost Trend: Comfortable with the commercial medical cost trend outlook of 8% plus or minus 50 basis points.
  • Operating Costs: Expects meaningful improvement in 2009, with over $400 million in run-rate operating cost reductions.

Financial Guidance

  • Revenue Range: $84 billion to $86 billion.
  • Earnings Per Share: $2.90 to $3.15 per share.
  • Cash Flow: Strong in relation to net earnings.
  • Share Repurchases: Important component of overall results, influenced by market factors.

Healthcare Reform

  • Position: UnitedHealth Group supports universal healthcare coverage and is committed to participating in the reform process.
  • Opportunities: Expansion of health insurance to currently uninsured Americans presents opportunities for public-private collaboration.
  • Medicaid/SCHIP Expansion: Likely to be the first major funded priority for healthcare reform.
  • Medicare Advantage and Medicaid Rates: Anticipates pressure but is preparing with more effective care management practices.

Closing Remarks

  • Internal Momentum: Building internal improvement momentum.

  • Positioning: Well-positioned as an enabler of national healthcare agenda.

  • Investor Conference: Scheduled for December 2, 2008, to discuss further progress and outlook for 2009 and beyond.

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