This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 17, 2018).
UnitedHealth Group Inc.'s said the federal tax overhaul will increase its 2018 earnings by roughly 16%, as it invests part of the windfall in technology and data initiatives.
Continue Reading Below
The health-care giant also beat analysts' expectations on its fourth-quarter earnings, but investors are likely to focus even more closely on the first concrete preview of the tax law's impact on the managed-care industry. UnitedHealth said the overhaul would likely boost its cash flow by about $1.7 billion this year. The company also said it thought benefits of the tax overhaul would be sustainable over time, though it refrained from offering details of its 2019 outlook.
UnitedHealth raised its 2018 earnings outlook to between $11.65 and $11.95 per share, from $10 to $10.30 previously; the new net earnings projection amounts to a range of $11.48 billion to $11.78 billion. The company's adjusted earnings guidance became $12.30 to $12.60 a share, compared with $10.55 to $10.85 previously.
The new range roughly matched the expectations of those analysts who had already adjusted their outlooks to account for the tax overhaul, according to analyst Peter Costa of Wells Fargo, who calculated their average projection at around $12.50 a share. UnitedHealth's corporate-tax rate will drop to roughly 24% from approximately 37% previously.
UnitedHealth's earnings for the fourth quarter of 2017 were fueled by growth in its UnitedHealthcare health-insurance and its Optum health-services businesses. Earnings during the quarter were $3.62 billion, or $3.65 a share, more than double the $1.68 billion, or $1.74 a share, the company earned during the same period a year prior. Adjusted earnings were $2.59 a share compared with $2.11 a share a year ago. Analysts polled by Thomson Reuters were expecting adjusted earnings per share of $2.51 and revenue of $51.51 billion.
UnitedHealth's earnings of $10.72 a share for 2017 were also helped by the new tax law. Because of a net deferred tax liability, the company had a noncash benefit of $1.22 per share.
Though the managed-care industry has been widely expected to benefit handsomely from the federal tax overhaul, some companies have cautioned about the size of the windfall, warning that some might be whittled away due in part to regulatory requirements and price competition, among other factors.
UnitedHealth's overall tax picture may also be different than that of its health-insurance competitors, since a significant portion of the company's business is now in its Optum health-services arm, which faces fewer regulatory requirements than the UnitedHealthcare health-insurance unit.
UnitedHealth said it would invest around $200 million to $300 million of its 2018 tax benefit in initiatives including artificial intelligence, data analytics, health-information records and improving its relationship with customers.
As it sketched out the impact of the tax overhaul, the company also flagged a premium revenue cutback between $400 million and $500 million this year, though it didn't adjust its 2018 revenue guidance range. That is partly tied to how the new tax change interacts with the way insurers handle an existing health-insurance tax that is part of the Affordable Care Act, as well as the ACA's requirements that a certain minimum share of premiums go toward health-care expenses.
UnitedHealth Group Chief Executive David S. Wichmann said the company is "not in a position to give elemental guidance" for next year. But he also said of the tax-overhaul benefit that "we believe it to be sustainable."
For the fourth quarter of 2017, revenue rose 9.5% to $52.06 billion. UnitedHealthcare revenue grew 9.6% overall while revenue from employers and individuals fell 1.5%. Profit for UnitedHealthcare rose 26% to $1.76 billion.
UnitedHealthcare has has pulled back from the ACA exchanges, after running up losses, and has said it is unlikely to re-enter them soon. But the company potentially stands to benefit as the Trump administration opens the door to more products that would be sold outside the health-law marketplaces, potentially with skinnier benefits and lower price points. During Tuesday's call, Mr. Wichmann said the company was "supportive" of those efforts, but didn't preview the potential upside for UnitedHealthcare. He did flag that the insurer currently offers association health plans, one form of coverage that the Trump administration's moves are expected to encourage.
Last month, UnitedHealth announced plans to buy Banmedica SA, a health-care company in South America for roughly $2.74 billion. It expects the deal to close in the first quarter.
Optum also announced a deal last month to buy DaVita Medical Group, part of DaVita Inc. which will become part of Optum's rapidly growing health-care provider business.
Mr. Wichmann said that investors shouldn't see the recent torrid deal pace as a sign that UnitedHealth is changing or accelerating its approach. He said both acquisitions fit into the company's long-term goals, and it had been eyeing the South American markets for about five years, while the DaVita purchase was "more coincidental."
UnitedHealth executives also said that with the DaVita acquisition, its health-care provider footprint will extend to 35 local markets, advancing toward its target of 75.
--Allison Prang contributed to this article.
Write to Anna Wilde Mathews at firstname.lastname@example.org
(END) Dow Jones Newswires
January 17, 2018 02:47 ET (07:47 GMT)