Walgreens Reports Strong Pharmacy Sales, but Front End Drags -- Update

By Lisa Beilfuss 

Walgreens Boots Alliance said sales edged up in its latest quarter as it filled more prescriptions, though revenue fell short of expectations as shopping remained constrained outside of the pharmacy.

Shares in the company fell 2.2% in morning trading, pulling the stock's year-to-date decline down to 4.1%.

The largest U.S. drugstore chain, formed when Walgreen and Alliance Boots merged at the end of 2014, has been working to reshape itself amid lower reimbursement rates and as the fast-changing U.S. health-care marketplace prompts consolidation. It is in the midst of completing its $9.4 billion acquisition of Rite Aid Corp., which Walgreens said Wednesday is on track to close in the second half of this year.

Earlier this year, it teamed up with United Healthcare Inc.'s pharmacy-benefit manager OptumRx, and last month Walgreens shook up its senior management ranks to lead what it says is the next phase of its evolution. Also last month, the company pulled the plug on its three-year partnership with embattled blood-testing firm Theranos as regulators weigh sanctions against the firm for voiding certain test results.

In its latest quarter, the Deerfield, Ill., company said overall sales at stores open at least a year rose 3.9%, better than the 3.7% analysts expected and up from the 2.2% pace -- the lowest in three years -- logged in the second quarter.

The improvement was driven by the company's pharmacy business. Pharmacy sales jumped 6% on a comparable basis, nearly double the prior quarter's rate, as it filled 4.5% more prescriptions thanks to rising Medicare Part D volume. Results in the segment, which makes up nearly three-quarters of overall revenue, "are solid and somewhat of a relief" given that new Medicare Part D rates went into effect at the start of the year "and this quarter reflects the full impact of that incremental volume," said David Larsen, analyst at Leerink Parners. Mr. Larsen had expected prescription volume to rise at a slower 3.5% clip.

At the front end, where the company sells items from snacks to greeting cards to beauty products, sales inched up 0.1% after declining 0.3% a quarter earlier. Walgreens has been trying to spur sales outside of its pharmacies, where spending has been lackluster. The company reiterated Wednesday that it is focused on rolling out higher-margin beauty products, a revamp that will continue throughout the year.

Over all for the period, Walgreens reported a profit of $1.10 billion, or $1.01 a share, down from $1.30 billion, or $1.18 a share, a year earlier. Excluding merger-related items and a change in the fair value of warrants exercised to buy a stake in AmerisourceBergen, among other things, per-share profit rose to $1.18 from $1.02.

Revenue edged 2.4% higher to $29.50 billion. Analysts projected $1.04 in adjusted earnings per share on $29.71 billion in sales, according to Thomson Reuters.

The company lifted the low end of its profit forecast for the year by a dime, now expecting to report $4.45 to $4.55 in adjusted earnings per share. Walgreens said the guidance assumes no impact from the pending Rite Aid deal.

Write to Lisa Beilfuss at [e-mail]

(END) Dow Jones Newswires

July 06, 2016 10:26 ET (14:26 GMT)

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