This excerpt taken from the UNH 8-K filed Jul 2, 2008.
UNITEDHEALTH GROUP REVISES 2008 FINANCIAL OUTLOOK
MINNEAPOLIS (July 2, 2008) UnitedHealth Group (NYSE: UNH) announced today a revision in its outlook for 2008, following an assessment of preliminary second quarter 2008 results and recent business trends. The Company now expects full year 2008 adjusted earnings per share in the range of $2.95 to $3.051 on revenues in the $81 billion range, with adjusted earnings from operations of approximately $6.5 billion1 and cash flows from operations approaching $5 billion1, prior to consideration of cash payments for litigation settlements, for which the timing for a portion of the payment is uncertain. UnitedHealth Group had previously projected $3.55 to $3.60 per share in earnings, with cash flows from operations of $5.7 billion to $6.0 billion. The Company will provide a full report on its results and outlook at the time of its second quarter 2008 earnings release, which has been scheduled for Tuesday, July 22, 2008.
During the second quarter, our risk-based businesses produced a lower level of gross margin than expected, and we also experienced a continuation of the pressures we saw in the first quarter stated Stephen J. Hemsley, chief executive officer. We are continuing to take the aggressive specific steps necessary to improve our operating performance, as well as to better position our organization for sustained future growth. We believe the initiatives we have underway will yield these results.
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Gross margin pressures continue to be concentrated in certain of the Companys health benefits businesses. UnitedHealthcare is experiencing greater-than-expected pressure on premium yields, due to an intensely competitive commercial business environment. Efforts to improve premium yields have resulted in a continuing reduction in risk-based business during 2008, which is a contributing factor to the reduced earnings outlook. Within the Companys seniors business there is a decrease in the projected gross margin, including gross margin directly related to 2008 benefit levels for Part D prescription drug offerings and for Special Needs Plans serving seniors with chronic conditions.
Among the specific steps to improve performance over the balance of 2008 and into 2009 are revised benefit designs for Special Needs Plans and Part D, changes in commercial market approaches related to underwriting and pricing, and a renewed focus on sales processes, care management and stakeholder relationships at the local market level. The Company is also streamlining enterprise functions in the areas of technology and operations, network management and clinical operations to improve their alignment within the benefits businesses and to enhance their effectiveness and cost efficiency. These and other operating cost actions are also expected to reduce current run-rate operating costs in 2009.
The commercial medical cost trend remains within its previously projected range of 7.5% plus or minus 50 basis points for 2008. UnitedHealth Group projects a full year 2008 consolidated medical care ratio in the range of 82.5 percent, plus or minus 50 basis points, with a UnitedHealthcare commercial medical care ratio in the range of 83.3 percent, plus or minus 50 basis points. This compares with respective previous estimates of 81.3 percent and 82.3 percent, plus or minus 50 basis points.