UNH shares slide as MCR comes in higher than expected
1min read UnitedHealth Group (UNH) reported Q3 2024 earnings, with adjusted EPS of $7.15, beating the FactSet consensus of $7.00, and revenue rising 9.2% year-over-year to $100.82 billion, surpassing the $99.28 billion consensus. However, the company's medical cost ratio (MCR) was higher than expected at 85.2%, compared to estimates of 84.4%, driven by Medicare funding reductions, medical reserve developments, and business and member mix changes.
UNH slightly narrowed its full-year adjusted EPS guidance to $27.50-$27.75 from the prior range of $27.50-$28.00, citing additional costs related to the cyberattack on its Change Healthcare unit. This narrowing includes $0.75 per share of business disruption impacts, up $0.10 from last quarter's estimate. Despite this, the company reaffirmed confidence in its long-term growth, driven by the expansion of people served at both Optum and UnitedHealthcare.
Optum, UNH’s services arm, performed strongly, with Q3 revenue of $63.9 billion, up $7.2 billion year-over-year. Optum Health’s revenue grew $2.1 billion, reflecting growth in patients served through value-based care, while Optum Rx's revenue grew $5.4 billion, driven by new customers and expanded pharmacy services. Optum's adjusted operating earnings were $4.8 billion, with a notable $135 million impact from the Change Healthcare disruption.
UnitedHealthcare, the company’s managed care segment, reported Q3 revenue of $74.9 billion, up $5 billion from last year, with 2.4 million more consumers served domestically year-to-date. The Medicare Advantage plans continue to resonate, covering 9.4 million seniors and people with complex needs, with growth expected into 2025. UnitedHealthcare's operating earnings were $4.2 billion.
The higher medical cost ratio reflects elevated healthcare utilization, particularly within Medicare Advantage, as well as funding cuts from the Centers for Medicare & Medicaid Services (CMS). The company saw no favorable impact from medical reserve developments this quarter, which further pressured profitability. Days claims payable increased to 47.4, reflecting a return to normal claims submission patterns.
Despite the challenges, UNH continues to improve its operating efficiency, with the Q3 operating cost ratio down to 13.2% from 15.0% last year. Cash flow from operations was robust at $14.0 billion, supporting continued shareholder returns through dividends and share repurchases, with $9.6 billion returned year-to-date. UNH’s return on equity for the quarter was a strong 26.3%.
While the revenue growth and strong performance at Optum and UnitedHealthcare bolstered results, concerns over rising medical costs and cyberattack-related disruptions weighed on investor sentiment. UNH stock fell 2.88% premarket following the report, highlighting concerns about profitability amidst these headwinds.
Looking ahead, UnitedHealth maintained its adjusted EPS guidance within the narrowed range, with expectations for 2024 net earnings impacted by the Change Healthcare disruption and South American disposals. The company remains well-positioned to navigate the evolving healthcare landscape while focusing on long-term growth across its business segments.