UnitedHealth humble but happy
Says net earnings should increase 14 percent in 2007; regrets role in options scandal.
December 19 2006: 3:56 PM EST
NEW YORK (Reuters) -- UnitedHealth Group Inc., which is trying to emerge from a stock-options scandal, forecast Tuesday better-than-expected 2007 revenue and an increase in net earnings next year of about 14 percent.
The company also said it regretted its involvement in a stock-options pricing scandal that led to the resignation of its former chief executive back in October.
The health insurer, which also affirmed its 2006 profit outlook as it met with analysts, forecast 2007 revenue of about $79.5 billion. That forecast exceeded the $77.9 billion in revenue expected by analysts, according to Reuters Estimates.
UnitedHealth (up $1.86 to $52.26, Charts), whose shares rose about 4 percent, is targeting enrollment growth next year across its health plans, including in its Medicare plans.
The company projected 2007 net earnings of $4.7 billion to $4.75 billion. Analysts expect 2007 GAAP net profit of $4.71 billion and earnings excluding one-time items of $4.73 billion.
"Management's 2007 guidance is more or less in line with consensus," Bank of America analyst Joseph France said in a research note.
UnitedHealth's outlook for 2006 and 2007 includes its estimated range of noncash charges for stock-based compensation expense arising from the review of its stock-option practices.
The top U.S. health insurer by market value also said it had largely completed its analysis of adjustments to past financial statements related to stock-based compensation expense, and had requested consultation on certain issues with the Securities and Exchange Commission.
UnitedHealth planned to review these issues with the SEC before completing its restatement and filing quarterly reports for its second and third quarters of this year.
The company gave its forecasts as it held its first major review of its business for analysts since former Chief Executive William McGuire left in the wake of a damaging report in October that found evidence of backdated stock options.
"It was embarrassing and we regret it," new CEO Stephen Hemsley said of the options scandal at the outset of the meeting, which was broadcast over the Internet.
For the years 1994-2005, the company estimated charges from stock-based compensation at $400 million to $600 million under one accounting method that it currently uses; or charges of $1.5 billion to $1.7 billion, under a second accounting method it had previously used.
"We think the quantification is another step toward moving the stock-options scandal behind it, and resuming its share repurchases next year," France said.
UnitedHealth cautioned the estimates have not been audited and are subject to change, depending on its consultation with the SEC.
"We will review our analysis and proposed restatement adjustments with the SEC and return to current filing status as quickly as possible," G. Mike Mikan, the company's chief financial officer, said in a statement.
The Minneapolis-based company previously had warned that financial statements dating to 1994 should no longer be relied upon.
The company affirmed its previous outlook for 2006 net earnings of $4.14 billion to $4.16 billion, including fourth-quarter 2006 net earnings in the range of $1.17 billion to $1.19 billion.
It forecast first-quarter net earnings of $980 million to $1 billion.
For 2007, the company projected it would serve 30 million medical members, a term generally used to describe people enrolled in plans that offer broad health benefits.
It said its medical care ratio - a key industry barometer that measures medical costs as a percentage of premium revenues - would worsen slightly to 81.5 percent, owed to a greater portion of business coming from its Medicare and Medicaid health plans.
However, the company projected its operating cost ratio would improve.
UnitedHealth's competitors include Aetna (Charts), Blue Cross and WellPoint (Charts).
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