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WBA starts off fiscal 2016 on strong note

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Walgreens Boots Alliance beats Wall Street's earnings forecast for 1Q

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DEERFIELD, Ill. — Walgreens Boots Alliance (WBA) topped Wall Street’s earnings projections for its fiscal 2016 first quarter.

WBA said Thursday that for the first quarter ended Nov. 30, 2015, adjusted net earnings attributable to Walgreens Boots Alliance were $1.13 billion, or $1.03 per diluted share, compared with $749 million, or 78 cents per diluted share, a year earlier. On a GAAP basis, net earnings attributable to WBA totaled $1.11 billion, or $1.01 per diluted share, versus $850 million, or 89 cents per diluted share, in the prior-year period.

On average, analysts had forecast WBA’s adjusted EPS for the first quarter at 96 cents, with estimates ranging from a low of 89 cents to a high of $1.05, according to Thomson Financial

First-quarter net sales totaled $29.03 billion, compared with $19.55 billion a year ago. WBA said the sharp gain stems largely from the inclusion of Alliance Boots’ consolidated results. That result was in line with analysts’ consensus estimate of $29.24 billion and projected revenue range of $28.11 billion to $32.14 billion, according to Thomson Financial.

WBA came into existence on Dec. 31, 2014, with the completion of the merger of Walgreen Co. and Alliance Boots GmbH, and it reported its first results as a company for the fiscal 2015 second quarter ended Feb. 28, 2015.

“The year has started with a comparatively strong first quarter, as we expected,” executive vice chairman and chief executive officer Stefano Pessina said in a statement. “Our ongoing work to control costs across Walgreens Boots Alliance and improve adjusted operating income margins is growing earnings overall. Although it is early in the year, we are on track to deliver against our expectations.”

WBA reported GAAP operating cash flow of $732 million and free cash flow of $392 million for the fiscal 2016 first quarter. Combined net synergies from the Walgreens-Alliance Boots combination in the quarter were $288 million, and the company said it expects to hit its target of $1 billion in combined synergies for the full year. WBA noted that figure excludes synergy benefits from its partnership with AmerisourceBergen, refinancing of legacy Alliance Boots debt at a lower cost and the proposed Rite Aid acquisition.

The company reiterated that it expects to close the Rite Aid transaction, announced on Oct. 27, in the second half of calendar 2016. Rite Aid shareholders are slated to vote on the $17.2 billion deal in a special meeting on Feb. 4.

“The work to renew and update our businesses, in order to meet the opportunities and challenges of our ever-changing markets, is a core strength that we must embrace as routine across our enterprise,” Pessina added. “Our ability to deploy tools and strategies that address these dynamics, generating continued growth across Walgreens Boots Alliance, and the commitment I see from our team give me confidence that we will deliver what we have signaled for 2016 and beyond.”

WBA’s Retail Pharmacy USA division, including Walgreens and Duane Reade, posted fiscal 2016 first-quarter sales of $20.37 billion, up 4.2% from $19.55 a year earlier. Same-store sales rose 5.8%, reflecting a 9.3% gain in the pharmacy and a 0.6% decrease in the front end. The company attributed the front-end result mainly to a reduction in unprofitable promotions and transition of seasonal items from holiday decorations to higher-quality, giftable items.

Pharmacy sales climbed 6.7% in the quarter and represented 68.4% of the division’s total sales. WBA said the increased pharmacy sales, in part, resulted from growth in Medicare Part D and a sharper focus on pharmacy customer care.

Prescription count in comparable stores gained 4.7% in the quarter. Overall, the division filled 231 million prescriptions, including immunizations, adjusted to 30-day equivalents in the quarter, up 4.1% versus a year ago.

WBA said that in the first quarter, the division’s retail prescription market share on a 30-day adjusted basis was up 20 basis points year over year to 19.2%, as reported by IMS Health. WBA added that Walgreens’ new U.S. fulfillment agreements with Valeant Pharmaceuticals International, announced in mid-December, are expected to enhance the division’s pharmacy market share growth as the agreements are rolled out in calendar 2016.

The division’s GAAP operating income in the first quarter declined 2.5% to $1 billion. Adjusted operating income was up 11.2% to $1.2 billion.

WBA’s Retail Pharmacy International division totaled revenue of $3.5 billion for the first quater. On a pro forma constant currency basis, same-store sales rose 2.2% year over year. The division’s main retail brands are Boots in the United Kingdom, Thailand, Norway, the Republic of Ireland and the Netherlands; Benavides in Mexico; and Ahumada in Chile.

The Pharmaceutical Wholesale division, which mainly operates under the Alliance Healthcare brand, had first-quarter sales of $5.8 billion, up 3.1% on a pro forma constant currency basis, and excluding acquisitions and dispositions.

Looking ahead, WBA raised its adjusted EPS (diluted) guidance for fiscal 2016 by 5 cents on low end. It now projects adjusted EPS of $4.30 to $4.55 for the full year. The company noted that the forecast assumes no material accretion from the proposed acquisition of Rite Aid.

On average, analysts project WBA’s fiscal 2016 adjusted EPS at $4.40, with estimates running from a low of $3.68 to a high of $4.64.


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