UnitedHealth lowers forecast

A slowing economy and worse-than-usual flu season made UnitedHealth sick too.

The health insurer’s first-quarter financial results came in short of Wall Street expectations and it slashed its outlook, sending its shares down 10%.

UnitedHealth also suffered from a drop in health insurance customers, lower investment income and sharper competition for new customers. In addition, declining employment, rising inflation and lower interest rates are “combining to create pressures not seen for many years,” President and Chief Executive Stephen J. Hemsley said.

He called the situation that led to the reduced outlook “unacceptable.”

“We are focused on making sure that this enterprise performs to its potential, and we are urgent about it,” he said.

Hemsley said the company had the most severe and geographically spread-out flu season in five years. That cost UnitedHealth $80 million, or 4 cents a share, above the usual expense for treating flu patients.

Profit at UnitedHealth rose 7% to $994 million, or 78 cents a share. That was 2 cents less than expected by analysts surveyed by Thomson Financial. During the same period last year, UnitedHealth earned $927 million, or 66 cents.

Revenue increased 7% to $20.30 billion. That topped the average estimate of $19.88 billion after the company booked $53 million in capital gains as it repositioned its investment portfolio.

But the first-quarter miss looks puny compared with the company’s reduced earnings expectation for the year.

UnitedHealth lowered its 2008 profit outlook by 40 cents a share to a range of $3.55 to $3.60, citing the same factors that hurt it in the first quarter. Revenue is expected to be $81 billion to $82 billion. It expects to earn 81 cents to 83 cents in the second quarter, with stronger results coming in the second half of the year. Analysts were expecting 95 cents a share for the quarter.

Stifel Nicolaus & Co. analyst Thomas Carroll said UnitedHealth has been parceling out bad news one quarter at a time for a year and a half, “and then saying things are going to get better. It’s been that same story for six quarters. And that has culminated in this sizable revision to earnings, much more than expected.”

UnitedHealth shares fell $3.66 to $34.15.