Health and Science

UnitedHealth tops profit estimates on strength in Optum business

Dawn Villella | Bloomberg | Getty Images

UnitedHealth, the largest U.S. health insurer, reported a stronger-than-expected quarterly profit and raised its full-year earnings forecast, helped by strength in its pharmacy benefit management business.

UnitedHealth, the bellwether for the industry, is the first health insurer to report earnings a week after U.S. President Donald Trump decided to cut off subsidies to health insurance companies for low-income patients, his latest attempt to weaken predecessor Barack Obama's signature healthcare law.

UnitedHealth had been immune to news involving Obamacare repeal efforts this year, in part as it largely pulled back from offering plans in the individual insurance exchanges due to mounting losses from the program.

"UnitedHealth rarely misses a step: the debut quarter for its new CEO had to be a good one," Mizuho Securities analyst Sheryl Skolnick wrote in a client note. The health insurer in August named David Wichmann its new chief executive.

UnitedHealth, which sells employer-based insurance as well as Medicare and Medicaid, said net earnings attributable to shareholders rose 26.3 percent to $2.49 billion, or $2.51 per share, in the third quarter ended Sept. 30.

Excluding items, the company earned $2.66 per share, beating the average analyst estimate of $2.56 per share, according to Thomson Reuters I/B/E/S.

Revenue from its Optum business, which manages drug benefits and offers healthcare data analytics services, rose 8.4 percent to $22.89 billion, accounting for nearly half of the insurer's total revenue.

UnitedHealth's total revenue rose 8.7 percent to $50.32 billion, but narrowly missed analysts' estimate of $50.35 billion.

The insurer said its withdrawal from individual insurance markets, combined with a health insurance tax deferral, reduced third-quarter revenue by about $1.6 billion and lowered the revenue growth rate by 4 percent.

"Despite a top-line hit of $1.6 billion ... UnitedHealth beat ... likely means a positive read-through for 2018," Mizuho's Skolnick said.

The company's medical care ratio, or the percentage of premiums paid out for medical services, increased to 81.4 percent from 80.3 percent.

The medical care ratio is 100 basis points lower than Mizuho's estimates, Skolnick said, adding that the cost trends remain favorable for UnitedHealth.

The company raised its full-year adjusted earnings forecast to about $10.00 per share, from $9.75-$9.90.

UnitedHealth's shares were up 1.4 percent at $196 in light premarket trading.