UNH Reports In Line

UnitedHealth Group Inc. ( UNH - Analyst Report ) reported its fourth-quarter 2012 earnings of $1.20 per share, in line with the Zacks Consensus Estimate. Earnings, however, increased 2.6% on a year-over-year basis.

The company posted revenues of $28.8 billion, up 11.0% year over year and better than the Zacks Consensus Estimate of $28.3 billion. The year-over-year increase was an outcome of higher premiums and escalated product revenue in the health benefits business (UnitedHealth Care), coupled with strong revenue growth at the service segment as well as the international segment.

For the full year 2012, net income per share of $5.28 was a penny ahead of the Zacks Consensus Estimate of $5.27 per share. Full year 2012 revenues were $110.6 billion, up 9% year over year.

During the quarter, UnitedHealth’s medical costs increased 12.0% year over year to $20.8 billion. Total operating costs increased 12.2% year over year to $26.7 billion.

Segment performance

During the reported quarter, UnitedHealth’s health benefits segment – UnitedHealthcare – witnessed revenue growth of 11.0% year over year to $26.9 billion. Earnings from operations, however, declined 11% to $1.6 billion, due to lower levels of reserve development in the quarter compared with the prior-year quarter.

Revenue from the company’s other segment – the health services segment branded as Optum – remained unchanged at $7.5 billion on a year-over-year basis. Earnings from operations, however, surged 65% year over year to $459 million. The company is aggressively expanding this segment in order to diversify its earnings. It expects Optum to contribute more than 30% of the earnings mix.

Membership Enrollment

UnitedHealth had 40.9 million members in its enrollment at the end of the quarter, up 6.355 million year over year. Most of the membership gains were in the international markets aided by the recent acquisition of Brazil-based Amil.

Capital Position

Cash flows from operations were $7.2 billion for the full year, including $1.7 billion in the fourth quarter. On a year-over-year basis, fourth-quarter 2012 days sales outstanding in accounts receivable of 9 days and days claims payable of 49 days both increased by one day.

Share Repurchases and Dividend

UnitedHealth Group bought back 57 million shares for a total consideration of $3.1 billion in 2012 and paid $820 million in shareholder dividends in 2012, up 26% year over year. The full year 2012 return on equity was 18.7%.

2013 Guidance Affirmation

The company has reaffirmed the previously issued earnings guidance for 2013. It continues to expect revenues of $123 billion to $124 billion and net earnings in the range of $5.25 to $5.50 per share.

During the quarter, UnitedHealth announced the big acquisition of Amil Participacoes S.A. of Brazil for $4.3 billion. The company is aggressively expanding its international business to offset the stringent regulatory pressures at home.

UnitedHealth’s peers such as Aetna Inc. ( AET - Analyst Report ) , CIGNA Corp. ( CI - Analyst Report ) , WellPoint Inc. ( WLP - Analyst Report ) , Humana Inc. ( HUM - Analyst Report ) are all expected to release their third-quarter earnings shortly.

UnitedHealth currently retains a Zacks Rank #3 (Hold). We are also maintaining our long-term Neutral recommendation on the shares.