Apr 19, 2007 10:35 am US/Central
UnitedHealth: 1Q Profits Stifled By Option Snares
Minneapolis (AP) ―
UnitedHealth Group Inc., the nation's second-largest health insurer, said on Thursday its first-quarter profit rose 4 percent, but the results were hampered by payments related to its stock options problems and weak enrollment in Medicare-related programs.
UnitedHealth shares plunged fell $2.16, or 4 percent, to $52.05 Thursday on the New York Stock Exchange.
The Minnetonka, Minn.-based insurer said it earned $927 million, or 66 cents per share, during the quarter that ended March 31, up from $891 million, or 63 cents per share, during the same period last year. Revenue of $19.05 billion rose 8 percent from $17.58 billion during the same period last year.
The results included 8 cents per share of expenses related to pricing problems with stock options from prior years. Not counting those expenses, UnitedHealth would have earned 74 cents per share. Analysts surveyed by Thomson Financial were expecting profits of 71 cents per share on revenue of $19.37 billion.
UnitedHealth said it will pay the tax bill triggered by stock options that were priced wrong when they were granted to non-officer employees. It said it took a $55 million charge for stock options exercised last year and a $57 million charge for increasing the strike price for stock options that have not yet been exercised. It said it would make payments during 2008 to employees who will lose money because the strike prices on their stock options are being raised.
The charges take care of "substantially all remaining tax-based exposures associated with historic options pricing for 2006, and for all future periods," Chief Executive Stephen Hemsley said on a conference call with analysts. He said UnitedHealth could still face expenses from regulators or lawsuits, but any such expenses should mostly be covered by insurance.
"While we are certainly not pleased with this charge, we believe it is a positive step in putting the option-related matters behind the company and resolving any lingering uncertainty," he said.
Hemsley said enrollment in Medicare's prescription drug program was weak, although he said UnitedHealth signed up a disproportionate share of those who did enroll.
UnitedHealth said it expects to earn $3.34 to $3.38 per share for 2007, on revenue of $77 billion, including the 8 cents per share in charges reported during the first quarter. Not counting those charges, the company said it was raising its guidance to $3.42 to $3.46 per share. Analysts were expecting $3.42 per share on revenue of $77.84 billion.
For the second quarter, UnitedHealth said it expects to earn 80 cents to 82 cents per share. Analysts were expecting 81 cents per share.
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