UPDATE: UnitedHealth 1Q Profit Up 13%; Raises Year View

UnitedHealth Group Inc.'s (UNH) first-quarter earnings rose 13%, far exceeding Street estimates and setting a positive tone for the managed-care group as patients' ongoing moderation in use of medical services limited the company's claims costs as a percentage of revenue.

The Minnesota health-insurance giant, considered an industry bellwether as it is the first to report quarterly results, also raised its current-year earnings-per-share forecast to a range of $3.95 to $4.05 on revenue approaching $101 billion. In January, the company had forecast earnings of $3.50 to $3.70 on about $100 billion in revenue.

UnitedHealth shares rose nearly 8% in premarket trades. Shares of peers WellPoint Inc. (WLP) climbed 4.5%, Aetna Inc. (AET) rose 4% and Cigna Corp. (CI) climbed nearly 2.6%.

Said Goldman Sachs analyst Matthew Borsch: "We expected upside to 1Q results, but we are surprised by the magnitude, which appears to reflect a combination of [UnitedHealth's] initial conservatism on its outlook...strong enrollment gains and overall execution, as well as confirmation of a continued 'moderated level of overall health systems use'."

UnitedHealth reported a profit of $1.35 billion, or $1.22 a share, up from $1.19 billion, or $1.03, a year earlier. Revenue jumped 9.7% to $25.43 billion.

Analysts polled by Thomson Reuters had most recently forecast earnings of 89 cents a share on $24.95 billion in revenue.

The company cited moderated use of health-care services in reporting that it used 81.4% of premium revenue on patient care--a statistic known as the medical-loss ratio, or MLR. That compares with 81.3% a year earlier and 79.6% in the fourth quarter.

Goldman's Borsch said he expects utilization of health-care services to remain moderate through 2013, and noted that, while new health-overhaul regulations requiring minimum medical loss ratios as of this year may limit insurers' potential profits, there is also an ongoing upturn in the industry underwriting cycle.

CRT Capital Group analyst Sheryl Skolnick called the results "very strong," with healthy medical enrollment growth of more than one million, for a total of nearly 34 million. Every membership group added customers, with commercial fee-only and Medicaid picking up the most, she noted.

Skolnick cited strong execution across UnitedHealth and was pleased to see expansion in its services business. Optum, UnitedHealth's information- and technology-based health services business, saw a 20% increase in revenue, while earnings were stable year over year.

Citigroup analyst Carl McDonald said the results indicate that margins are up meaningfully in UnitedHealth's large-group risk product, which are less susceptible to new requirements for rebates should the insurer miss MLR minimums.

The bulk of the guidance increase appears related to favorable development of reserves that didn't have to be used for claims in prior periods, McDonald said.

-By Dinah Wisenberg Brin, Dow Jones Newswires, 215-982-5582; dinah.brin@dowjones.com

--Nathan Becker contributed to this article.

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