UnitedHealth Group profit jumps beyond estimates

Jan. 17--UnitedHealth Group on Tuesday reported fourth-quarter earnings that easily beat estimates and vaulted the company over $200 billion in annual revenue for the first time, and said it expects the federal tax overhaul will provide a significant profit boost this year.

The Minnetonka-based health care giant, which is the nation's largest health insurer, said Tuesday that the tax law in 2018 would increase earnings and cash flow by $1.7 billion, prompting UnitedHealth Group to boost earnings guidance by about 16 percent.

The tax overhaul will result in UnitedHealth Group's rate falling from about 37 percent to 24 percent, analysts say. The savings will allow for investments in everything from data analytics and digital health to the application of artificial intelligence in delivering health insurance benefits.

"We concluded that our ambitions for better health and a better health system are best achieved through investment in ways that will make health care far more affordable and of far higher quality," David Wichmann, the UnitedHealth Group chief executive, said during a conference call with investors. It's too soon to detail the 2019 impact, Wichmann said.

The tax law commentary came as UnitedHealth Group reported fourth-quarter earnings that capped a record year for the company in terms of revenue, with full-year sales growing 9 percent in 2017 to $201 billion.

During the fourth quarter, UnitedHealth Group saw strong growth from its Optum division for health services, where each of three key business units reported year-over-year growth in operating earnings of just over 20 percent, wrote Peter Costa, an analyst with Wells Fargo Securities, in a note to investors. Optum includes a pharmaceutical benefits manager, a business that provides IT and data services to other health care companies and a division for nonhospital health care services.

In December, Optum bolstered its business providing health care directly to patients with a $4.9 billion deal to acquire DaVita Medical Group. With the acquisition, the company says it will have a presence in 35 local health care markets across the country, or nearly half the 75 markets it has targeted for development.

The health insurance business at UnitedHealth Group has been growing, too. At the end of the fourth quarter, the company's UnitedHealthcare division was providing insurance coverage to about 45.4 million people in the U.S., up from nearly 45 million people at the end of the third quarter.

UnitedHealth Group employs about 18,000 people in Minnesota. Historically, the company has had only a minimal presence in Minnesota's health insurance market, but UnitedHealthcare officials last year said they have plans for selling more coverage to employer groups in the state.

During Tuesday's conference call, a company official said the push into Minnesota and the northern plains would come in the second half of 2018.

UnitedHealth Group closed 2017 with not just with the DaVita Medical Group deal, but also an agreement to acquire a health care provider and insurer operating in Chile, Colombia and Peru for roughly $2.8 billion. In 2012, the company acquired the largest hospital operator and health insurer in Brazil.

"Collectively, these countries have a population roughly equal to that of the U.S., but perhaps more growth opportunity in these emerging private health care markets, as well as a broader and longer term opportunity to serve the systems more holistically by also serving public markets," said Molly Joseph, chief executive of UnitedHealth Group's international business.

The deal to acquire Empresas Banmédica is expected to close in the first quarter. Wichmann said UnitedHealth Group had been studying the South American markets for about five years.

In December, President Donald Trump signed legislation that significantly reduces the tax rate on corporations including UnitedHealth Group. The savings result in reduced premium revenue and certain fees for UnitedHealth Group, due in part to increased consumer rebates triggered by regulation on the share of UnitedHealthcare premium revenue that's directed to medical costs.

Even after adjusting for the estimated $400 million to $500 million hit on premiums and fees, UnitedHealth Group expects the law to benefit earnings and cash flow by $1.7 billion.

In addition, the tax law savings will allow for an additional $200 million to $300 million investment to reduce operating costs by accelerating "existing initiatives in artificial intelligence, data analytics, individual health record custodianship, digital health ... [and] more health-related initiatives in local communities," Wichmann said.

"We expect to invest the remaining increased cash flows to better fulfill our mission and, in turn, to grow and diversify our enterprise," he said.

For the fourth quarter, UnitedHealth Group saw net income more than double, to $3.6 billion, on $52 billion in revenue.

After excluding one-time items, earnings per share of $2.59 beat the $2.52 expected among analysts surveyed by Thomson Reuters. Benefits from the tax bill did not affect the quarterly earnings per share calculation, the company said.

"We revalued our U.S. deferred tax liabilities to reflect the newly enacted federal statutory rate of 21 percent, which added $1.2 billion in noncash earnings in 2017," said John Rex, the company's chief financial officer, during the conference call.

UnitedHealth Group says it now expects in 2018 adjusted earnings of $12.30 to $12.60 per share, up from a November forecast of $10.55 to $10.85. The company expects 2018 revenue in the range of $223 billion to $225 billion.

UnitedHealth Group shares closed Tuesday at $232.90, up nearly 2 percent for the day.

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