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UnitedHealth Group Reports Second Quarter Results

Stocks in this article: UNH

UnitedHealth Group (NYSE: UNH) today reported second quarter results that included year-over-year growth in revenues, revenue backlog, earnings from operations, and net earnings per share.

“Our focus on executing on fundamental details, delivering innovative and responsive services that consumers value and building deeper relationships is creating stronger momentum and improving our outlook,” said Stephen J. Hemsley, president and chief executive officer of UnitedHealth Group.

UnitedHealth Group expects 2014 revenues in the area of $130 billion, up from the previous estimate of $128 billion to $129 billion. Management tightened its forecast for net earnings to a range of $5.50 to $5.60 per share, from $5.40 to $5.60 per share, driven by strong second quarter results and improving business trends.

 
Quarterly Financial Performance
   

Three Months Ended

June 30,     June 30,     March 31,

2014

2013

2014

Revenues $32.6 billion $30.4 billion $31.7 billion
Earnings From Operations $2.6 billion $2.4 billion $2.1 billion
Net Margin     4.3%     4.7%     3.5%
 
  • UnitedHealth Group’s consolidated second quarter 2014 revenues of $32.6 billion grew $2.2 billion or 7 percent year-over-year. Revenue growth was led by growth in people served in public and senior markets at UnitedHealthcare and strong pharmacy services growth at Optum.
  • Second quarter revenues included net capital gains of $107 million, compared to $49 million in second quarter 2013, driven by the sale of a venture portfolio investment. Consistent with past practice, UnitedHealth Group donated the majority of the gain ($80 million) to the United Health Foundation, keeping the Foundation strongly funded for the future.
  • Second quarter earnings from operations were $2.6 billion and net earnings were $1.4 billion or $1.42 per share, compared to $1.40 per share in second quarter 2013. The effects of the Affordable Care Act (ACA) reduced the second quarter 2014 after tax margin of 4.3 percent by about 90 basis points.
  • Second quarter 2014 cash flows from operations of $1.0 billion decreased from $1.5 billion in the second quarter of 2013 due to the timing of cash receipts. The Company continues to project full year 2014 cash flows from operations in the range of $7.8 billion to $8.2 billion.
  • The consolidated medical care ratio increased 10 basis points year-over-year to 81.6 percent in the second quarter of 2014. Medical reserves developed favorably by $130 million, including $40 million related to 2013 medical costs, compared to $310 million in the second quarter of 2013, which included $120 million related to the previous year’s costs.
  • The second quarter 2014 operating cost ratio of 16.0 percent increased 10 basis points year-over-year. The impact of ACA reinsurance fees and nondeductible health insurance taxes, the $80 million charitable donation to the United Health Foundation and specific investments in Optum growth platforms were offset by productivity and scale advances enterprisewide.
  • The second quarter 2014 income tax rate of 41.3 percent increased nearly 6 percentage points year-over-year due to provisions in the ACA.
  • Second quarter 2014 days sales outstanding of 15 days increased 4 days year-over-year, due to the impact of accelerated growth in product revenues, the timing of federal government receipts and strong growth in Medicaid, which carries longer payment terms. Days claims payable decreased by one day year-over-year to 48 days at June 30, 2014.
  • The Company’s balance sheet remained strong, with cash available for corporate use exceeding $1 billion and the debt to total capital ratio at 33.7 percent at June 30, 2014, a decrease of 90 basis points year-over-year.
  • During the quarter, UnitedHealth Group increased the annual dividend payment rate 34 percent to $1.50 per share and renewed the share repurchase program for 100 million shares or roughly 10 percent of the Company’s outstanding shares. Through June 30, 2014, dividend distributions to shareholders grew 29 percent year-over-year to $642 million. Year-to-date more than 25 million shares have been repurchased for just under $2 billion, at an average price of less than $77 per share.

UnitedHealthcare provides health care benefits for a full spectrum of customers and markets. UnitedHealthcare serves individuals and employers ranging from sole proprietorships to large, multi-site and national and international organizations; delivers health and well-being benefits to Medicare beneficiaries and retirees; manages health care benefit programs on behalf of state Medicaid and community programs and serves the nation’s active and retired military and their families through the TRICARE program.

 
Quarterly Financial Performance
   

Three Months Ended

June 30,     June 30,     March 31,

2014

2013

2014

Revenues $30.1 billion $28.3 billion $29.3 billion
Earnings From Operations $1.8 billion $1.8 billion $1.4 billion
Operating Margin     6.1%     6.4%     4.8%
 
  • UnitedHealthcare’s second quarter 2014 revenues of $30.1 billion grew $1.8 billion or 6 percent year-over-year, primarily due to strong growth in people served in the public and senior sector, price increases reflecting underlying medical cost trends and ACA reform impacts, and favorable revenue development related to federal and state-based benefit programs. The number of people served across all medical benefit markets increased by 270,000 in the second quarter. Year-over-year, strong growth in people served in public and senior markets and through international expansion was offset by a decrease in domestic commercial benefits.
  • Earnings from operations for UnitedHealthcare for second quarter 2014 of $1.8 billion grew $15 million year-over-year. The operating margin of 6.1 percent decreased 30 basis points year-over-year due to ACA effects.

UnitedHealthcare Employer & Individual

  • UnitedHealthcare Employer & Individual second quarter 2014 revenues of $10.7 billion decreased $405 million year-over-year, due to the decrease in people served with risk-based products. The Company served 520,000 fewer people through risk-based products year-over-year, including 230,000 fewer in second quarter 2014. Employer-sponsored fee-based business decreased by 20,000 people in the quarter.
  • UnitedHealthcare’s second quarter 2014 commercial medical care ratio of 80.2 percent decreased 50 basis points year-over-year, reflecting the impact of ACA fees for fully insured customers on revenues, partially offset by lower levels of reserve development. Medical cost trends remained moderate and consistent with expectations.

UnitedHealthcare Medicare & Retirement

  • Second quarter 2014 UnitedHealthcare Medicare & Retirement revenues of $11.8 billion grew $732 million or 7 percent year-over-year.
    • In Medicare Advantage, UnitedHealthcare grew year-over-year to serve 65,000 more seniors.
    • Medicare Supplement products continue to grow, and serve 300,000 more people year-over-year, including growth of 40,000 people in the second quarter.
    • UnitedHealthcare’s stand-alone Medicare Part D drug plans delivered strong year-over-year growth of 350,000 people, including 5,000 people in the second quarter.

UnitedHealthcare Community & State

  • Second quarter 2014 UnitedHealthcare Community & State revenues of $5.8 billion grew 29 percent year-over-year, due to strong growth in people served through state sponsored benefit programs and an increasing mix of people enrolling in higher acuity services, such as state long-term care programs.
  • UnitedHealthcare grew its Medicaid services by 19 percent or 730,000 more people in the past year, including 380,000 people in the second quarter and 635,000 year-to-date.

UnitedHealthcare International

  • UnitedHealthcare International second quarter 2014 revenues of $1.8 billion grew 10 percent or $157 million year-over-year.

Optum is a health services business serving the broad health care marketplace, including payers, care providers, employers, governments, life sciences companies and consumers. Using advanced data analytics and technology, Optum helps improve overall health system performance: optimizing care quality, reducing costs and improving the consumer experience and care provider performance.

 
Quarterly Financial Performance
   

Three Months Ended

June 30,     June 30,     March 31,

2014

2013

2014

Revenues $11.7 billion $9.1 billion $11.2 billion
Earnings From Operations $728 million $592 million $650 million
Operating Margin     6.2%     6.5%     5.8%
 
  • Optum revenues for the second quarter of 2014 grew 28 percent or $2.6 billion year-over-year to $11.7 billion, and Optum’s second quarter 2014 earnings from operations grew 23 percent or $136 million year-over-year to $728 million.
    • OptumHealth revenues of $2.6 billion grew 7 percent year-over-year, due principally to expansion and growth in integrated care delivery services and in health care distribution services.
    • OptumInsight revenues grew to $1.2 billion in the second quarter of 2014, advancing 5 percent year-over-year. Revenue backlog grew to $7.5 billion at June 30, 2014, with external business up approximately 20 percent year-over-year, driven by strength in Optum360 revenue management and growth in payer services, partially offset by a reduction in compliance services. The growing backlog is a key indicator of Optum’s overall success in growing services to customers and provides a measure of visibility on future revenue growth.
    • OptumRx revenues grew 42 percent year-over-year as second quarter script volumes increased 30 percent year-over-year to more than 140 million adjusted scripts.
  • Optum’s second quarter operating margin was 6.2 percent and reflected the increased mix of pharmacy service revenues in Optum’s overall business, as expected. Second quarter 2014 results continued to include meaningful investments to develop future growth opportunities, particularly at OptumHealth and OptumInsight.

About UnitedHealth Group

UnitedHealth Group (NYSE: UNH) is a diversified health and well-being company dedicated to helping people live healthier lives and making health care work better. With headquarters in Minnetonka, Minn., UnitedHealth Group offers a broad spectrum of products and services through two distinct platforms: UnitedHealthcare, which provides health care coverage and benefits services; and Optum, which provides information and technology-enabled health services. Through its businesses, UnitedHealth Group serves more than 85 million people worldwide. For more information, visit UnitedHealth Group at www.unitedhealthgroup.com.

Earnings Conference Call

As previously announced, UnitedHealth Group will discuss the Company’s results, strategy and future outlook on a conference call with investors at 8:45 a.m. Eastern time today. UnitedHealth Group will host a live webcast of this conference call from the Investors page of the Company’s website ( www.unitedhealthgroup.com). The webcast replay of the call will be available on the same site through July 31, 2014, following the live call. The conference call replay can also be accessed by dialing 1-800-723-0394. This earnings release and the Form 8-K dated July 17, 2014 may also be accessed from the Investors page of the Company’s website.

Forward-Looking Statements

The statements, estimates, projections, guidance or outlook contained in this press release include “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). These statements are intended to take advantage of the “safe harbor” provisions of the PSLRA. Generally the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “forecast,” “plan,” “project,” “should” and similar expressions identify forward-looking statements, which generally are not historical in nature. These statements may contain information about financial prospects, economic conditions and trends and involve risks and uncertainties. We caution that actual results could differ materially from those that management expects, depending on the outcome of certain factors.

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