Unitedhealth Navigates Mixed Q3 Results Amid Expanding Services And Rising Costs
$UNH
UnitedHealth Group Incorporated (NYSE:UNH) reported a robust performance for the third quarter of 2024, achieving adjusted earnings per share (EPS) of $7.15. This figure surpassed the Zacks Consensus Estimate by 1.9% and represents a 9% increase compared to the previous year. The company’s revenues also experienced significant growth, rising by 9.1% year over year to $100.8 billion, driven largely by an increase in the number of individuals served through its UnitedHealthcare and Optum segments.
The revenue growth not only exceeded the consensus mark by 1.3%, but it also reflected strong domestic commercial membership expansion, the enhancement of value-based care initiatives in Optum Health, and new client acquisitions at Optum Rx. A closer examination of its business performance revealed that UnitedHealth’s medical care ratio (MCR) deteriorated by 290 basis points year over year to 85.2%. This decline was influenced by reduced Medicare funding from the Centers for Medicare & Medicaid Services (CMS) and changes in the mix of its business and membership.
Operating costs surged nearly 10% year over year to $92.1 billion, primarily due to heightened medical expenses and the cost of products sold. Nonetheless, the operating cost ratio improved by 180 basis points year over year, reaching 13.2% in the third quarter. Operating earnings rose by 2.4% year over year to $8.7 billion, although this included a $0.3 billion impact from a cyberattack. The net margin, however, saw a slight decline during the quarter.
In terms of segment performance, the UnitedHealthcare division reported a revenue increase of 7.2% to $74.9 billion, thanks to growth in domestic membership. Conversely, earnings from operations in this segment fell by 8.7% year over year, leading to a deterioration in the operating margin by 100 basis points to 5.6%. In contrast, the Optum business line recorded a 12.7% revenue increase to $63.9 billion, bolstered by strong contributions from Optum Health and Optum Rx, although it fell short of consensus estimates.
Despite experiencing a 4% decline in the number of individuals served by UnitedHealthcare, which stood at 50.7 million as of September 30, 2024, the company maintains a solid financial position. Cash and short-term investments surged by 25.3% since the end of 2023, reaching $37.1 billion, while total assets increased by 9.3% to $299.3 billion. However, long-term debt rose by 27.2% to $74.1 billion. The company also reported a significant decline in operating cash flows, which dropped by 36.3% to $21.8 billion in the first nine months of 2024.
During this same period, UnitedHealth returned over $9.6 billion to shareholders through share repurchases and dividends. Looking forward, the company has adjusted its 2024 earnings outlook, now projecting adjusted net EPS to range between $27.50 and $27.75, slightly down from the previously stated range of $27.50 to $28.00. This revised forecast accounts for the disposal of South American operations and the financial implications of the Change Healthcare cyberattack, with anticipated direct response costs of $2.15 per share and a business disruption impact of 75 cents per share.
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