Shares of UnitedHealth Group Inc. shot up more than 9 percent in premarket trading Thursday after the insurer released earnings that met expectations and offered some reassurance to Wall Street.
Minnetonka, Minn.-based UnitedHealth reported a 28 percent drop in third-quarter profit, driven in part by higher operating costs, lower investment income and settlements for class-action lawsuits. The second-largest U.S. health insurer said its net earnings fell to $920 million, or 75 cents per share, in the quarter ending Sept. 30, down from $1.28 billion, or 95 cents per share, in the same quarter last year.
But UnitedHealth also said revenue rose 8 percent to $20.2 billion from $18.7 billion a year ago.
Its adjusted profit was 73 cents per share, excluding a 2-cent benefit from a change in the estimate of net costs to settle a couple stock option-related lawsuits.
That matched Wall Street expectations. Analysts polled by Thomson Reuters also expected $20.04 billion in revenue.
Company shares rose to $23.75, up from a previous closing price of $21.67.
Goldman Sachs analyst Matthew Borsch said the insurer's results wound up 3 cents per share above his firm's estimate. Overall, the results show a "significant improvement" over the first half, Borsch said in a research note.
He also noted that the company's investment portfolio "remains sound and conservatively positioned."
UnitedHealth saw its total operating costs rise 12 percent to $18.6 billion due mainly to an 11 percent rise in medical costs.
The company also saw a 52 percent drop in investment income to $143 million from $302 million in the quarter.
UnitedHealth normally is the first large managed-care company to release earnings each quarter and is seen by many as a bellwether for the sector.
The company announced in July an $895 million payout to settle a class-action lawsuit over options backdating, a problem it has been wrestling with since 2006. The issue had led to the forced departure of former CEO Bill McGuire, who helped build UnitedHealth into a managed-care powerhouse.
The insurer agreed to settle a class-action lawsuit led by the California Public Employees Retirement System and Alaska Plumbing and Pipefitting Industry Pension Trust. The plaintiffs had argued that options backdating cost shareholders money.
UnitedHealth also agreed to pay $17 million to resolve another suit related to the Employee Retirement Income Security Act.
