UnitedHealth Sinks as Attrition Takes Toll

"The company lost seven large accounts," explained Arnold, who has an overweight rating on UnitedHealth's stock. "We had expected some small group and midsized memberships to offset these losses, but this did not occur."

For its part, UnitedHealth said it sacrificed some of its business because it refused to offer lower prices that lead to money-losing contracts. It also said that falloffs due to attrition could slow down later this year.

Still, the company says it has taken a cautious view on the economy. It expects any recovery to be "slower, more erratic ... and more uneven" than some believe.

In the meantime, UnitedHealth has stepped up its focus on segments that are less sensitive to the current environment. And some of those boasted record-breaking results during the latest quarter.

Ingenix, the company's health information division, delivered its "strongest first quarter ever" by posting a 73% jump in pretax profits. AmeriChoice, which offers Medicaid coverage, reported double-digit profit growth. So did health benefits administrator Uniprise. And the company's Ovations unit, which caters to the growing Medicare population, boasted its strongest revenue ever -- just ahead of new reforms that could lead to substantial growth in this particular market.

Noting some of these improvements, Merrill Lynch analyst Doug Simpson declared the quarter a solid one overall. He was particularly impressed with the company's "very strong" free cash flow of $827 million, which represented a 30% jump from a year earlier and toppled his expectations by nearly $200 million.

Back-Seat Driver

Still, others voiced some concerns. Citigroup Smith Barney analyst Charles Boorady noted, of course, that organic enrollment in the company's health insurance division -- "the biggest revenue and earnings driver" -- continues to decline. And some found disappointments in less vulnerable units as well.

Arnold, for example, had expected higher revenue from both Ingenix and AmeriChoice. But sales growth at Uniprise and another division did surpass her expectations.