Walgreens Sales and Guidance Rise, but Top Line Misses Expectations--Update

By Lisa Beilfuss 

Walgreens Boots Alliance Inc. said sales increased 14% in its latest quarter and the company bumped up its full-year guidance, though revenue fell short of expectations amid a weak cold-and-flu season and a foreign-exchange hit.

Shares declined 1.5% in premarket trading.

The Deerfield, Ill., company has been working to grow its footprint in a competitive drug market, and in October struck a $9.4 billion deal to buy America's third-biggest pharmacy chain Rite Aid Corp. The acquisition, which would more than double its store count, is under regulatory review by the Federal Trade Commission. Walgreens said Tuesday that the deal is on track to close in the second half of this year.

The move to snap up its rival is part of a broader consolidation in the drugstore space, as pharmacies face lower reimbursement rates from health insurers and the federal government in addition to growing competition from the likes of Wal-Mart Stores Inc. CVS Health Corp., meanwhile, bought Target Corp.'s pharmacies and clinics business last year for $1.9 billion.

Walgreens, which also operates Duane Reade stores, said Tuesday that profit in its most recent quarter fell to $930 million, or 85 cents a share, from year-earlier earnings of $2.04 billion, or $1.93 a share-a tough comparison because of a gain of $814 million, or 77 cents a share, related to its 2014 deal to buy the chunk of Europe's Alliance Boots GmbH that it didn't already own.

Excluding the merger-related gain, among other items, per-share profit rose to $1.31 from $1.18. Analysts anticipated $1.28 in adjusted earnings per share.

Thanks in large part to the Boots acquisition, overall sales at Walgreens jumped to $30.18 billion from $26.67 billion a year earlier as sales at stores open at least a year rose 2.2%. The increase fell short of analysts' expectation for $30.66 billion and the rise in same-store sales marked the slowest in about three years -- softness the company attributed to a weak cough, cold and flu season in addition to adverse exchange rates. Flu cases across the country declined roughly 16% and unfavorable currencies sliced 2.4% off the top line, Walgreens said.

Pharmacy sales, which represent about two-thirds of the top line, rose 3.2% as the company filled 233 million prescriptions, up 3.9% from a year earlier. Comparable pharmacy sales edged 2.6% higher, driven by growth in the U.K.

Chief Executive Stefano Pessina said Tuesday that Walgreens is on pace to meet its expectations for the year as its works to mitigate lower pharmacy reimbursement rates and a challenging retail sales environment. For the fiscal year ending in August, the company projects $4.35 to $4.55 in adjusted earnings per share. Earlier, the low end of that range was $4.35. Analysts have projected $4.48 a share.

In its latest bid to capture a bigger piece of the prescription drug market, Walgreens last month agreed to a deal with UnitedHealth Group Inc.'s OptumRx by which OptumRx will charge its customers, including employers and insurers, less for certain drugs if patients fill their prescriptions at Walgreens stores.

Write to Lisa Beilfuss at [e-mail]

(END) Dow Jones Newswires

April 05, 2016 08:55 ET (12:55 GMT)

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