* Q1 EPS of 81 cents vs 67-cent Wall St estimate
* Commercial membership falls less than expected
* Backs 2009 EPS forecast of $2.90-$3.15
* Q2 earns to be “markedly” lower than Q1
* Shares fall as much as 5.6 percent (Recasts, adds analyst comments, updates shares)
By Lewis Krauskopf
NEW YORK, April 21 (Reuters) - UnitedHealth Group Inc (UNH.N) posted sharply higher than expected first-quarter profit on Tuesday, helped by its commercial plans for employers, but shares fell as much as 5.6 percent as it refrained from raising its full-year forecast.
The largest U.S. health insurer by market value also said second-quarter earnings would fall “markedly” below the first quarter because of the seasonal swings in the business, including members beginning to reach their deductibles.
The strong first quarter was underscored by significant additions in its Medicare plans for seniors. But the company cited uncertainty with the economic environment threatening its customers as it maintained its 2009 profit forecast.
“I didn’t hear anything that was fundamentally to me a red flag at all but they did not raise full-year ‘09 guidance,” said Ana Gupte, an analyst with Sanford Bernstein. “I think that is something that investors will wonder about given the strong beat.”
UnitedHealth kicked off the reporting season for health insurers, whose shares have been battered by disappointing 2008 results, the weak economy and uncertainty over the financial impact of potential U.S. health reform measures.
Health insurers face reimbursement cuts to their Medicare plans next year, and the U.S. government is mulling the possibility of a public plan competing in the private insurance market.
“The real key issue for the company and for the industry is what happens in Congress,” said Sheryl Skolnick, an analyst with CRT Capital Group.
Of UnitedHealth’s first-quarter results, Skolnick said: “Now you have people sort of saying, ‘We got the good news, this might be the last good news we get for a long time, let’s sell.’”
First-quarter net income fell to $984 million, or 81 cents per share, from $994 million, or 78 cents per share, a year earlier, when Minneapolis-based UnitedHealth had more shares outstanding.
The results beat the analysts’ average forecast by 14 cents a share, according to Reuters Estimates.
“Results appear to be stronger than expected across all key metrics,” Goldman Sachs analyst Matthew Borsch said in a research note.
Revenue rose 8.4 percent to $22 billion.
UnitedHealth continues to forecast 2009 earnings of $2.90 to $3.15 per share, saying the broad range reflects the uncertain economic climate.
Wachovia analyst Matt Perry said management’s cautious outlook also reflected the company’s recent earnings misses.
For the second quarter, the company said it would see lower investment income, while its prescription benefits unit would not see the same volume growth as in the first.
UnitedHealth’s membership in its commercial plans stood at 25.44 million on March 31, a decline of 905,000 from year-end. Some 445,000 fewer people were enrolled in the more lucrative plans for which the company assumes full insurance risk.
But the decline was less steep than UnitedHealth had feared, as the company retained more customers than expected.
Overall membership stood at 32.43 million, up slightly from a year ago. The company added 200,000 people to its Medicare plans, already ahead of its 2009 target.
The lower-than-expected membership declines “indicates to us that corrections put in place over the last year to improve service are finally gaining tangible traction,” BMO Capital Markets analyst Dave Shove said in a research note.
UnitedHealth’s medical care ratio, a key measure of premium revenue spent on medical costs, was flat at 82.4 percent. The result was better than the 83.8 percent expected by UBS analysts.
A weaker flu season than a year ago helped moderate medical costs, the company said.
Profit at the company’s prescription benefit unit jumped 43 percent to $140 million, helped by volume growth.
UnitedHealth shares were down 91 cents or 3.8 percent at $23.30, off an earlier low at $22.84, at midday on the New York Stock Exchange. Through Monday, the shares had fallen about 9 percent in 2009, compared with a 7 percent drop for the S&P Managed Health Care index .GSPHMO. (Reporting by Lewis Krauskopf; Editing by Lisa Von Ahn and Matthew Lewis)