UnitedHealth signals prolonged pain with new, far lower profit forecast, shares fall

By Sriparna Roy and Sneha S K

July 29 (Reuters) - UnitedHealth Group UNH.N provided a full-year profit forecast on Tuesday after suspending its prior outlook in May, revealing billions of additional costs the company will face in the upcoming quarters.

The health insurer projected full-year adjusted earnings per share of at least $16, well short of analysts' already diminished estimates, while second-quarter profit also missed Wall Street expectations.

"While the $16 EPS floor was lower than expected, it does give investors/analysts a base to model off of, and potentially sets up UNH to return to the 'beat and raise' cadence that its investors had become accustomed to," said James Harlow, senior vice president at Novare Capital Management.

Company executives attributed the shortfall to higher medical costs than it had expected and other poor planning. It now sees medical costs for the year coming in $6.5 billion higher than initially projected.

"We significantly underestimated the accelerating medical trend and did not modify benefits or plan offerings sufficiently to offset the pressures we are now experiencing," said Tim Noel, the new CEO of the company's UnitedHealthcare health insurance unit.

UnitedHealth shares were down nearly 5% on Tuesday. They have fallen more than 40% this year.

UnitedHealth and other insurers have been hit hard this year by elevated medical costs. The company's underperformance led to the abrupt departure of CEO Andrew Witty in May.

Stephen Hemsley, who returned as chief executive, is under pressure to regain investor trust as the company faces financial struggles and reputational damage that surfaced after the then-CEO of its health insurance unit was gunned down on a New York City street in December.

"This is a challenging year for our enterprise. But I feel strongly we can overcome these challenges, as we have done before," Hemsley said in a call to discuss the results and forecast.

Underperformance of its Optum pharmacy benefit manager, which also provides financial consultation and other services, added to issues the company must address. Optum's quarterly revenue fell 7%, hurt by legacy customer contract revisions.

The company said the unit's 2025 profit will be $6.6 billion below its own expectations.

"There are areas that we have under-invested, and they include areas of Optum insight," Hemsley said, adding that there was a need for stable leadership and a product offerings upgrade.

The company in December had forecast 2025 adjusted profit of $29.50 to $30.00 per share before pulling that, nearly double its new view. UnitedHealth posted an adjusted profit of $27.66 per share in 2024.

Medical cost trends in its Medicare Advantage plans for older adults are now expected to run at about 7.5% in 2025, exceeding prior company expectations of just over 5%. The company anticipates these trends to continue to accelerate to nearly 10% next year.

UnitedHealth has a strong balance sheet, which will likely help the company to repair its problems, said Bill Smead, chief investment officer at Smead Capital Management.

UnitedHealth's adjusted second-quarter profit of $4.08 per share missed analysts' estimates by 40 cents.