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Walgreens earnings beat Wall Street projections

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To partner with Verily on health care outcomes.

DEERFIELD, Ill. — Walgreens Boots Alliance (WBA) on Thursday reported first quarter double-digit earnings growth for fiscal 2019 that beat analysts’ expectations, while revenue fell short of forecasts. The retailer’s revenue was $33.79 billion.

Stefano Pessina

“We are pleased to have delivered double-digit percentage growth in earnings per share in the first quarter, including solid results in the U.S.,” said executive vice chairman and chief executive officer Stefano Pessina. “We continue to focus on and invest in transforming our business. We have made good progress on partnerships, including advancing our collaborations with Kroger, FedEx and Humana and, earlier this week, we announced an initiative with Verily to further expand our health care offering. Today we are reaffirming our fiscal 2019 guidance and announcing the launch of a new transformational cost management program, which is targeting annual cost savings of more than $1 billion by the end of the third year, to better position ourselves to meet our long-term targets.”

First quarter net earnings attributable to WBA increased to $1.1 billion, up 36.8% compared with the same quarter a year ago, while net EPS increased 45.7% to $1.18.

Adjusted net earnings increased 7% to $1.4 billion, up 7.6% on a constant currency basis, from the year-ago period. Adjusted EPS was $1.46, an increase of 14.1% on both a reported and constant currency basis.

Sales in the first quarter were $33.8 billion, an increase of 9.9%, or 11.4% on a constant currency basis, from a year ago, including the benefit from acquired Rite Aid stores.

Operating income was $1.4 billion, an increase of 6.1% from a year ago. Adjusted operating income was $1.7 billion, a decrease of 4.1%, or 3.3% on a constant currency basis, reflecting a challenging market and exceptional items in the U.K.

Net cash provided by operating activities was $460 million in the first quarter, and free cash flow was negative $10 million, reflecting first quarter investment in working capital and the integration of Rite Aid stores.

Retail Pharmacy USA had first quarter sales of $25.7 billion, an increase of 14.4% over the year-ago quarter. Excluding the benefit from acquired Rite Aid stores, organic sales growth was 4.6% in the quarter.

Pharmacy sales, which accounted for 74.4% of the division’s sales, increased 17.5% compared with the year-ago quarter, primarily due to higher prescription volumes from the acquisition of Rite Aid stores and from central specialty. Comparable-pharmacy sales increased 2.8%. The division filled 289.8 million prescriptions, including immunizations, adjusted to 30-day equivalents in the quarter, an increase of 11.4%. Prescriptions filled in comparable stores increased 2%.

The division’s retail prescription market share on a 30-day adjusted basis increased around 180 basis points over the year-ago quarter to 22.4%, as reported by IQVIA.

Retail sales increased 6% compared with the year-ago quarter. Comparable retail sales were down 3.2% in the quarter, primarily due to the continued deemphasis of selected products such as tobacco and a difficult comparison with the prior-year quarter, which was boosted by exceptional events.

Gross profit increased 7.1%, and adjusted gross profit increased 6.1% over the year-ago performance.

The retailer also announced that it will collaborate with Verily, an Alphabet company, on multiple projects under a broad agreement aimed at improving health outcomes for patients with chronic conditions, while also lowering the cost of care.

Walgreens will be a first-choice retail pharmacy development and commercialization partner to Verily, and the organizations have agreed to work on ways to improve access to advanced health care technologies and solutions — which may include sensors and software to help prevent, manage, screen and diagnose disease — with a shared goal of scaling deployment at Walgreens’ retail locations.

Initially, the companies are developing a medication adherence pilot project that will deploy devices and other approaches designed to improve adherence. Walgreens together with Onduo, Verily’s joint venture with Sanofi, will also launch a virtual diabetes solution to Walgreens employees and family members with type 2 diabetes through the Walgreens employee health plan. Onduo provides tools, coaching and remote access to specialty doctors to help people with diabetes manage their condition anytime, anywhere. These initiatives are part of a broader strategic alliance designed to combine Verily’s health care technology innovation with Walgreens’ corner store presence and trusted pharmacy services.

“We’re focused on finding innovative ways to deliver better patient care at lower costs, and working with the right health care partners to help bring new services and solutions to our patients and customers,” said Pessina. “The continued rise in chronic diseases today can be costly to patients as well as to our health care system. Working with Verily, we’ll look at how we can best support integrated and value-based care to meet our patients’ needs, as well as opportunities to address other chronic conditions over time.”


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