UnitedHealth Group Inc. (UNH) Reports Healthy Q2 Earnings

UnitedHealth Group IncUnitedHealth Group Inc. (NYSE:UNH) looks to be firing on nearly all cylinders in 2013. The nation’s largest health insurer reported strong second-quarter earnings before the market opened today. Shares shot up 5% in early trading. Here are the highlights from UnitedHealth Group Inc. (NYSE:UNH)’s results.

By the numbers
Net earnings for the quarter totaled $1.4 billion, or $1.40 per share. This reflects a 10% year-over-year increase on a per-share basis. It also easily surpassed Wall Street estimates of $1.25 per share. Earnings from operations came in at $2.4 billion, an increase of 8% compared to the second quarter from the prior year.

UnitedHealth Group Inc. (NYSE:UNH) reported second quarter revenue of $30.4 billion, up 12% from the same quarter in 2012. The average estimate of analysts polled by Thomson was $30.5 billion.

The company’s medical care ratio increased by 20 basis points year-over-year to 81.5%. UnitedHealth attributed this rise to higher revenue growth in government programs.

UnitedHealth Group Inc. (NYSE:UNH) also announced a nice improvement in its operating cost ratio. The ratio climbed 90 basis points from the second quarter of 2012 to 15.9% for the past quarter.

Behind the numbers
Several factors contributed to the healthy results reported by the insurer. None was more important than the rapid growth for Optum, UnitedHealth’s health services business unit.

Optum’s revenue jumped 21% year-over-year to $8.8 billion. Earnings from operations climbed to $536 million, a whopping 68% increase from the same period last year. Without Optum, UnitedHealth Group Inc. (NYSE:UNH)’s total net earnings would have decreased.

Every area within Optum performed well, with all businesses seeing double-digit growth in revenue and earnings from operations. Pharmacy benefits manager OptumRx had especially strong results. The unit continued to insource UnitedHealthcare pharmacy customers, as well as bring in new external customers. These efforts led to a 23% year-over-year increase in revenue and a 51% increase in earnings from operations.

The health insurance side of UnitedHealth Group’s business, UnitedHealthcare, saw revenue climb 11% year-over-year to $28.3 billion. This increase stemmed largely from strong enrollment growth for its commercial insurance, especially in fee-based insurance and the addition of TRICARE.

However, earnings for UnitedHealthcare of $1.9 billion in the second quarter were the same as the same period last year. This flatness resulted in large part from Medicare payment reductions.

International business kicked in $1.6 billion in revenue for the second quarter. UnitedHealth’s acquisition of Amil, Brazil’s largest health care company, made a big difference.

Looking ahead
The positive second-quarter results led UnitedHealth Group Inc. (NYSE:UNH) to affirm its full-year revenue projections of $122 billion. The company also tightened earnings guidance, providing a revised full-year net earnings range of $5.35 to $5.50 per share.

I suspect that Optum will continue to carry the company in the months ahead. Strong revenue and earnings growth in this lucrative side of the business should power UnitedHealth shares along.

My view is that, barring major macroeconomic woes, the stock will experience solid, although perhaps not spectacular, gains through the remainder of this year and into 2014. With a 1.6% dividend yield to boot, UnitedHealth could make a healthy addition to investors’ portfolios.

The article UnitedHealth Reports Healthy Q2 Earnings originally appeared on Fool.com and is written by Keith Speights.

Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group.

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