UnitedHealth Group Incorporated (UNH)

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Unitedhealth Group (UNH)

Q1 2011 Earnings Call

April 21, 2011 8:45 am ET

Executives

Jack Larsen - CFO, Public and Senior Sector Group

William Munsell - Executive Vice President

Gail Boudreaux - Executive Vice President and Chief Executive Officer of United Healthcare

Dan Schumacher - CFO, UnitedHealthcare

David Wichmann - Chief Financial Officer, President of Operations and Executive Vice President

Michael Murphy - Chief Medical and Scientific Officer

Stephen Hemsley - Chief Executive Officer, President and Executive Director

Analysts

Christian Rigg - Susquehanna Financial Group, LLLP

Joshua Raskin - Barclays Capital

Michael Baker - Raymond James & Associates, Inc.

Peter Costa - Wells Fargo Securities, LLC

Sarah James - Wedbush Securities Inc.

Carl McDonald - Citigroup Inc

Scott Fidel - Deutsche Bank AG

Matthew Borsch - Goldman Sachs Group Inc.

Charles Boorady - Crédit Suisse AG

Ana Gupte - Sanford C. Bernstein & Co., Inc.

John Rex - JP Morgan Chase & Co

Doug Simpson - Morgan Stanley

Christine Arnold - Cowen and Company, LLC

Kevin Fischbeck - BofA Merrill Lynch

Thomas Carroll

Presentation

Operator

Good morning. I will be your conference facilitator today. At this time, I would like to welcome everyone to the UnitedHealth Group First Quarter 2011 Earnings Conference Call. [Operator Instructions]

As a reminder, this conference is being recorded. This call and its contents are the property of UnitedHealth Group. Any use, copying or distribution without written permission from UnitedHealth Group is strictly prohibited.

Here is some important introductory information. This call contains forward-looking statements under U.S. Federal Securities Laws. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports that we’ve filed with the Securities and Exchange Commission from time to time, including the cautionary statements included in our current and periodic filings. Information presented on this call is contained in the earnings release we issued this morning and in our Form 8-K dated April 21, 2011, which may be accessed from the Investors page of the company's website at www.unitedhealthgroup.com.

I would now like to turn the conference over to the President and Chief Executive Officer of UnitedHealth Group, Stephen Hemsley.

Stephen Hemsley

Good morning, and thank you for joining us. This morning, we will review our first quarter results and how those results underpin our outlook for a strengthened full year 2011 performance.

To put the quarter in perspective, we are serving an ever-increasing array of customers across the healthcare system. Our portfolio of products and services is growing, and they provide opportunities for deeper involvement and penetration in serving customers' need. They enable us to deliver more comprehensive solutions, and as a result, we are developing longer, more durable and more expansive relationships.

We are delivering products and services that are more affordable in how they are designed, delivered and how they perform. We are driving higher quality and lower-cost outcomes and better information and interoperability on behalf of our customers. As a company, we have become more flexible and innovative in our products, services and approaches. And we're getting better at combining these in practical ways to meet specific customer and market needs.

We are developing new products and new ways and venues to serve our markets. Today, we can be found in retail settings, social networks, mobile applications, delivered in clouds, in true connectivity, embedded in alliances and associations and inside care provider systems and care settings, as well as delivered through consultants, brokers and agents serving the spectrum of market segment.

Every quarter, we are becoming more aligned, more integrated, simpler to understand and easier to do business with. We are today more easily recognized and more accountable to our customers under the UnitedHealthcare and Optum brand. Our products, service and performance commitments meet and exceed customer expectations, are more trusted today. We are more invested in relationships and more innovative in our solutions. These themes resonate powerfully in our people, and while there is more to be done, we believe it's making a difference in our business performance.

So as we update our view of 2011, we now forecast full year revenues to approach $101 billion, nearly $2 billion above our initial forecast from November, and a nearly $7 billion increase over 2010 results. We expect per share earnings for the year to be in the range of $3.95 to $4.05 per share, an increase of $0.40 at the midpoint of the range. We see operating cash flows strengthening to a range of $5.8 billion to $6.2 billion.

In the first quarter 2011, our revenues exceeded $25 billion, an increase of nearly 10% year-over-year and nearly double the rate of growth in the first quarter one year ago. Product revenues grew 23%. Fee revenues advanced 17% and premium revenues grew 9% year-over-year. Operating margins were stable at 8.7% in the quarter, with a strong mix of higher-margin service revenue offsetting a 10 basis point year-over-year increase in both the medical care and operating cost ratios.

With higher revenues, a slightly lower tax rate and fewer average shares outstanding, first quarter net earnings grew 18% to $1.22 per share. These earnings were supported by strong cash flows from operations of more than $1.2 billion.

Our strengthening reputation for service, value and innovation, combined with balance and trusted local market engagement continued to produce consistent growth for the UnitedHealthcare Benefits businesses. We grew to serve 1.25 million more people across these businesses during the quarter after adding 1.2 million in total in 2010. We are increasing our 2011 growth outlook to reflect the momentum from the first quarter performance, while still factoring in an expectation for a continued stagnant employment outlook.

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