Managed health care provider UnitedHealth (UNH 248.64,
-8.34) trades 3.3% lower this afternoon despite beating second quarter
expectations as the company’s full year 2018 outlook, though it was revised
higher, came in below market expectations.
Since the stock seems to be reacting foremost to the underwhelming guidance, let’s begin there. Even so, based on first half 2018 results and the business outlook for the balance of the year, UnitedHealth has raised its outlook for 2018 adjusted net earnings to a range of $12.50-12.75/share, up from $12.40-12.65, and now expects cash flows from operations to approach $15.5 bln.
Second quarter earnings of $3.14/share beat market expectations while revenues rose 12% year/year to $56.09 bln, yet were just in-line with market expectations. UnitedHealthcare grew to serve 2.2 mln more consumers year/year in the second quarter of 2018, and second quarter 2018 earnings from operations of $2.4 bln grew 6.6%.
The consolidated medical care ratio of 81.9% in the second quarter of 2018 decreased 30 basis points year/year, as the return of the health insurance tax more than offset business mix changes and reduced levels of prior year reserve development. Medical cost reserve development of $20 mln was driven by positive development in cost estimates for first quarter 2018 business.
In the second quarter of 2018, Optum revenues grew by $2 bln or 9.1% year/year to $24.7 bln. Optum’s operating margin of 7.5% expanded 80 basis points year/year. OptumHealth revenues of $5.9 bln grew $819 mln or 16% year/year, driven by growth in care delivery and behavioral health, digital consumer engagement, and health financial services. OptumHealth served 92 mln people at quarter end, having grown to serve 6 mln more people, or 7%, over the past year. OptumRx second quarter 2018 revenues grew 7% year/year to $16.9 bln on 3% growth in fulfillments to 332 mln adjusted scripts in second quarter 2018.
On the company’s conference call, management highlighted their disappointment in their performance in the large case Administrative Services Only marketplace. Also, management highlighted their view that 2018 medical care ratio should run in the range of 81.5% plus or minus 50 basis points, with commercial trends well within range of expectations of 6% plus or minus 50 basis points. In general, the company sees more tailwinds than headwinds through the remainder of 2018. As to the company’s headwinds, UnitedHealth expects the policy debate surrounding coverage expansions and health care costs to continue into next year. Additionally, the return of the health insurance tax in 2020 will cause higher premiums and lower coverage levels for people, but UnitedHealth will be advocating on behalf of its customers and consumers for a delay or outright repeal of this tax.
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