Healthcare is front and center in Washington once more, and lawmakers have made little progress toward making anticipated changes on the insurance front. In the absence of more reform efforts, health insurance giant UnitedHealth Group (UNH 2.15%) continues to walk its own path, making key strategic decisions intended to support the insurer's profitability while still retaining its customer base.
Coming into Tuesday's second-quarter financial report, UnitedHealth investors were optimistic that the insurance company's efforts would pay off with broad growth in sales and earnings. The company's results largely bore those expectations out, and UnitedHealth again boosted its 2017 profit guidance to reflect the success it has had. Let's look more closely at UnitedHealth and what its results mean for investors going forward.
Image source: UnitedHealth.
UnitedHealth keeps up its momentum
UnitedHealth's second-quarter results continued its string of solid performance. Revenue of $50.05 billion was up 7.7% from year-ago levels, almost exactly matching the consensus forecast among investors. Net income soared by a third to $2.35 billion, and even after allowing for extraordinary items, adjusted earnings of $2.46 per share topped what those following the stock had expected to see by $0.08 per share.
Looking more closely at how UnitedHealth did, the company's two main segments had more balanced contributions to its growth. The UnitedHealthcare insurance division revenue climbed almost 9% to $40.8 billion, as strength in its Medicare and retirement, community and state, and global segments offset a slight revenue decline from employer and individual plans. UnitedHealth served 195,000 more people during the quarter than it did three months ago, as new awards in several states offset seasonal workforce reductions with some of the insurer's private-employer customers. Margin improvement helped boost operating earnings to $2.2 billion.
UnitedHealth's Optum health services unit also showed signs of renewed growth. Revenue climbed almost 10%, with particularly strong results for the OptumHealth health-plan management business and the OptumInsight revenue management and business process business. The OptumRx pharmacy benefit management service still lagged somewhat, but it managed to post a 5% rise in segment sales.
UnitedHealth CEO Stephen Hemsley was pleased with the performance of the company. "Continued strong revenue growth from new business and exceptional customer retention reflects the confidence customers place in our commitment to and effectiveness in meeting their healthcare needs," Hemsley said.
What's coming up for UnitedHealth?
Investors will be curious to see whether UnitedHealth can keep up its streak of favorable claims performance. During the second quarter, the company said that medical reserves development added $200 million to performance, compared to a $100 million headwind in the year-ago quarter. Improved business mix and product performance also helped offset the impact of tax deferral issues. With a medical care ratio of 82.2%, UnitedHealth remains healthy.
UnitedHealth again boosted its projections for the full year. The health insurer didn't change its revenue guidance from its previous level of around $200 billion mark, but adjusted earnings are now projected to come in between $9.75 and $9.90 per share. That's a rise of $0.05 to $0.10 per share from the previous quarter's guidance, and that shows that UnitedHealth isn't concerned about the potential impact of healthcare reform efforts on its bottom line.
Going forward, it will be interesting to see how UnitedHealth responds if changes to the Affordable Care Act take place. The company has slashed its coverage under the ACA in 2017, retreating to only three states compared to its 34-state network in 2016. If reform makes it more profitable for insurance companies to maintain plans under a federal framework, then UnitedHealth might return to the market, and that could actually make the area a growth driver again.
UnitedHealth shareholders were reasonably happy with the company's performance, and the stock rose slightly in pre-market trading following the announcement. Investors will have to deal with uncertainty in the health insurance field for a while, but they can expect UnitedHealth to keep pressing forward and making the most of whatever opportunities it can capitalize on in the future.
