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UnitedHealth's Profits Fall on Higher Costs

OKLAHOMA CITY -- UnitedHealth Group (UNH) just gave investors another reason to fret.

The giant health insurer saw its third-quarter profits plummet despite a solid uptick in membership and sales. The company's net income fell 28% to $920 million in the recent quarter as a result of rising medical costs and recent investment losses.

Thanks to a favorable adjustment for legal expenses, however, its earnings per share of 75 cents beat Wall Street expectations by 3 cents.

UnitedHealth topped sales forecasts as well, boasting customer growth across most of its business lines. Revenue climbed 8% to $20.2 billion, inching ahead of the $20 billion consensus estimate.

For the fourth quarter, UnitedHealth expects to improve its performance and post earnings of 77 cents a share to 80 cents a share. Analysts, on average, were looking for profits to fall at the low end of that range.

Going forward, analysts believe that UnitedHealth's stock could top $32 a share. The stock lost ground on Thursday, however, slipping 3% to $21.03 following the company's disappointing update.

While no longer the profit machine it once was, UnitedHealth pointed to new signs of progress in its long-awaited comeback.

"The company's solid results reflect the early benefits of a series of actions we initiated to improve our performance," CEO Stephen Hemsley stated on Thursday.

"Efforts to strengthen local market execution and improve stakeholder relationships are being well received and have strong potential for longer-term gains. Other steps, such as reducing our operating cost structure and improving the positioning of 2009 benefits for most senior product offerings, should have a continuing favorable effect" this year, he said.

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