UnitedHealth Group reported sharply lower second-quarter earnings because of several unusual events, including a big payout for a shareholder settlement and costs related to recent job reductions.
For the quarter ending June 30, net income for the Minnetonka-based health insurer fell to $337 million, or 27 cents per share, from $1.23 billion, or 89 cents per share, a year ago.
However, excluding the effect of the special items, which also included the sale of several senior insurance businesses in Nevada, the company earned 67 cents per share. That's more than the 64 cents per share on average expected by analysts.
Because news of the settlement and job cuts came out weeks ago, and because adjusted earnings turned out better than expected, the company's stock rose $2.38, or almost 10 percent, to $26.21 Tuesday.
The company reiterated its commitment to focusing on local markets, where it faces stiff competition from Blue Cross.
"During the first and second quarters, we initiated important actions to improve our performance, and we are seeing progress on those actions," said chief executive Stephen Hemsley.
On July 2, the company said it would pay $895 million to settle a class-action lawsuit led by the California Public Employees Retirement System. It also said it was cutting 4,000 jobs nationally, or just under 6 percent of its workforce, and reduced its forecast 2008 profit for the second time.
For 2008, the company continues to forecast earnings of $2.95 and $3.05 per share and cash flow from operations close to $5 billion. It plans to buy back more than $3 billion of its own shares in the full year, reiterating its view that company shares were undervalued.
Chen May Yee • 612- 673-7434
2nd quarter FY2008, 6/30
2008 2007 % chg. Revenue $20,272.0 $19,000.0 +6.7 Income 337.0 1,228.0 -72.6 Earn/share 0.27 0.89 -69.7 6 months
Revenue $40,576.0 $38,047.0 +6.6 Income 1,331.0 2,155.0 -38.2 Earn/share 1.05 1.55 -32.3 Figures in millions except for earnings per share.
* Second-quarter 2008 earnings for the current three months and six months were $830 million and $1,827 million excluding pretax operating costs of $922 million ($0.47 per share after tax) for settlement of two class-action lawsuits related to the company's historical stock option practices and related legal costs, and $46 million (2 cents per share after tax) for employee severance related to operating cost reduction initiatives and other items, partially offset by a $185 million (9 cents per share after tax) reduction in operating costs for proceeds from the sale of certain assets and membership in the individual Medicare Advantage business in Nevada in May 2008. Earnings for the six months ended June 30, 2007 include $87 million of pretax operating costs for the settlement of Internal Revenue Code Section 409A surtax liabilities on behalf of non-officer employees who exercised certain options in 2006 and 2007, and $89 million of non-cash operating costs for the modification charge from repricing un- exercised options subject to IRS Section 409A.