By Lewis Krauskopf
Reuters
Thursday, January 18, 2007; 12:35 PM

NEW YORK (Reuters) - Insurer UnitedHealth Group Inc. <UNH.N>, which is trying to emerge from a stock options scandal, reported fourth-quarter net earnings of $1.2 billion on Thursday, slightly above estimates, helped by its Medicare prescription drug plans for seniors.

But UnitedHealth shares dropped 2.25 percent after the company cut its forecast for enrollment in its full-service Medicare Advantage health plans, citing problems with marketing execution.

"What it says is this is not a company that is firing on all cylinders," CRT Capital Group analyst Sheryl Skolnick said.

Skolnick and other analysts also noted the stock had run up more than 10 percent in the past month, and investors may have been disappointed that the company did not boost its 2007 profit forecast.

The largest U.S. health insurer by market value, which is reviewing its past accounting, had previously said year-earlier results were not reliable for comparison because past reported costs did not correctly reflect compensation expenses related to option grants.

UnitedHealth did not provide earnings-per-share figures but said it had 1.4 billion diluted, weighted-average common shares outstanding in the fourth quarter. On that basis, earnings were nearly 86 cents per share. Analysts' average forecast was 85 cents, according to Reuters Estimates.

UnitedHealth said it still expects 2007 net income of $4.7 billion to $4.75 billion, or an increase of as much as 14 percent from 2006's $4.17 billion, subject to adjustments for expenses tied to the stock options review.

"The upward trade in the stock into this quarter suggests some investors may have anticipated the company would raise 2007 guidance," Goldman Sachs analyst Matthew Borsch wrote in a research note.

Skolnick said it was not unusual for UnitedHealth shares to fall on its earnings report. "Unless they blow the quarter out of the water, the stock never goes up on earnings day," she said.

Fourth-quarter revenue rose 47 percent to $18.16 billion, helped by UnitedHealth's acquisition of PacifiCare Health Systems and its Medicare Part D plans. Analysts had expected $18.08 billion.

PLAN MEMBERSHIP

UnitedHealth's Part D plans, which provide prescription drug benefits under the federal Medicare insurance program for the elderly, served 5.74 million members as of the end the year.

Enrollment in UnitedHealth plans that provide broad health benefits was 28.5 million, up about 200,000 from the third quarter. Analysts said that excluding acquisitions, membership was short of their estimates.

The company cut its forecast for growth in its Medicare Advantage program in the current quarter. It now expects to add about 20,000 members, down from a previous forecast of about 90,000. It expects to add between 80,000 and 100,000 members to the program overall this year.

"Our shortcomings in this area are due more to our own lack of marketing execution than any real broader market dynamic," Chief Executive Stephen Hemsley told analysts on a conference call. He believes Medicare Advantage will remain a growth opportunity.

Medicare Advantage plans generally result in far more revenue per member than the plans that offer just prescription drug benefits.

The Minneapolis-based company is trying to rebound from a stock options scandal that led to the ouster of its longtime chief executive, William McGuire.

Fourth-quarter results included about $50 million in cash and noncash expenses related to stock option matters, the company said.

Hemsley said the company was seeking to become current on its financial statements "as quickly as possible." Analysts have said it is important for the company to file the reports so the insurer can resume buying back shares.

UnitedHealth shares were down $1.25 to $54.40 in midday trade on the New York Stock Exchange.

Although the shares have rebounded in recent months, they were still down 9 percent in the 12 months ended Wednesday, underperforming the shares of rival WellPoint Inc. <WLP.N>.