Insurer UnitedHealth Groupsaid Tuesday fourth-quarter earnings rose slightly, in line with Wall Street forecasts, but its shares slumped 5 percent on disappointing trends for its commercial plans serving employers.
UnitedHealth, the largest U.S. health insurer by market value, said an important profitability gauge for its commercial business worsened more than analysts expected in the fourth quarter, and it projected a steeper enrollment decline for some of its commercial plans in the current quarter.
"Overall, I just think the report this quarter is slightly less quality than we've seen in the past," said Thomas Carroll, an analyst with Stifel Nicolaus.
UnitedHealth shares fell more sharply than the broader U.S. markets, which were hit by fears of a recession, and slightly more than large health insurers on average.
Fourth-quarter net income increased to $1.22 billion, or 92 cents per share, from $1.18 billion, or 84 cents per share, a year earlier. Revenue rose 3 percent to $18.7 billion.
Results were boosted by improved performance in its Medicaid plans for low-income Americans and in its health-care analytics unit, but the company increased spending to market its Medicare plans for seniors.
UnitedHealth provided medical benefits to 31 million members as of the end of December, down slightly from the end of the third quarter as it had fewer members in its commercial plans.
It faces growth concerns about its commercial plans as it tries to overcome self-admitted service problems. "The company is not growing and 2008 hinges on a second-half turnaround that appears to rest more on hope than signed contracts," Bank of America analyst Joseph France said in a research note.
UnitedHealth expects first-quarter commercial membership to fall by 550,000 members. That includes a decline of 400,000 in plans for which it takes on full insurance risk, a drop of 50,000 more than it previously projected.
"It's a further hit to revenue that the company says they're not going to get back," Carroll said.
Minneapolis-based UnitedHealth's consolidated medical care ratio -- the percentage of premiums spent on medical costs -- improved slightly to 79.9 percent in the fourth quarter from 80 percent a year earlier.
The ratio for UnitedHealthcare, a unit that serves small and mid-sized businesses, worsened to 83.7 percent from 81.6 percent in the third quarter, reflecting higher seasonal use of medical services and a state ruling that lowered premium revenue.
The UnitedHealthcare ratio was half of a percentage point worse than Oppenheimer & Co. analyst Carl McDonald had expected.
Revenue at the Americhoice business, which serves Medicaid members, rose 24 percent to $1.2 billion.
Earnings from operations at its Ingenix health-care data and analysis business soared 62 percent to $120 million.
The company maintained its 2008 earnings forecast of $3.95 to $4 per share, an increase of as much as about 14 percent over adjusted 2007 results. It projected first-quarter earnings of 82 cents to 84 cents per share.
Analysts on average expect 84 cents for the first quarter and $3.97 for the year, according to Reuters Estimates.
UnitedHealth shares fell $3.00, or 5.5 percent, to $51.40 in morning trade on the New York Stock Exchange. Through last week, the shares has risen 13 percent since the start of the fourth quarter, outpacing a nearly 8 percent rise for the S&P Managed Healthcare index.