Walgreen Q1 Profit Rises, Results Beat View

(RTTNews) - Drugstore chain Walgreen Co. (WAG) on Tuesday reported a 16 percent increase in profit for the first quarter from last year, reflecting higher sales and a strong increase in prescriptions filled. Both revenue and adjusted earnings per share beat analysts' expectations.

Greg Wasson, president and CEO said, "We truly appreciate that our 8,200-plus store teams exceeded the overall retail market in year-over-year sales growth heading into the holiday season, as we grew gross profit dollars faster than our costs during the quarter. We also completed our financing to close the Alliance Boots transaction as we move toward our shareholder vote on Dec. 29 to finalize the merger, ahead of our original goal."

Net earnings attributable to Walgreens for the first quarter were $809 million or $0.85 per share, up from $695 million or $0.72 per share in the same period last year. The latest quarter's results include a net negative impact of $36 million or $0.04 per share.

Adjusted net earnings for the quarter were $0.81 per share, compared to $0.72 per share in the year-ago quarter. On average, 20 analysts polled by Thomson Reuters expected the company to report earnings of $0.75 per share for the quarter. Analysts' estimates typically exclude special items.

Walgreens noted that Switzerland-based Alliance Boots GmbH contributed $0.11 per share to its first-quarter adjusted earnings.

The combined synergies for Walgreens and Alliance Boots in the first quarter were about $140 million and remain on track to reach at least $650 million in fiscal 2015, the company said.

Net sales for the quarter grew 7 percent to $19.55 billion from $18.33 billion in the prior-year quarter, as total sales in comparable stores increased 5.7 percent. Analysts' consensus revenue estimate for the quarter was $19.50 billion.

However, gross margin declined 1 percentage point from last year to 27.1 percent.

The company noted that pharmacy gross profit dollars were negatively affected by lower third-party reimbursement and generic drug price inflation compared to last year. These were partially offset by an increase in the brand-to-generic drug conversions.

Walgreens noted that both pharmacy and front-end margins benefited from purchasing synergies from its joint venture with Alliance Boots.

Walgreens' front-end comparable store sales grew 1.5 percent in the quarter. While customer traffic in comparable stores decreased 2.7 percent, basket size increased 4.2 percent.

Pharmacy sales, which accounted for 66.8 percent of sales in the quarter, increased 9 percent, while pharmacy sales in comparable stores increased 8.1 percent.

The company filled 222 million prescriptions in the quarter, up 4.3 percent from last year. Prescriptions filled in comparable stores increased 4.1 percent. At quarter-end, Walgreens retail prescription market share on a 30-day adjusted basis reached 19 percent, as reported by IMS Health.

Walgreens said it will hold a special meeting of shareholders on December 29 in New York City. This follows the announcement made on August 6, when the company exercised its option to complete the second step of its strategic transaction with Alliance Boots. Walgreens already owns a 45 percent stake in Alliance Boots.

At the special meeting, Walgreens' shareholders will be asked to vote upon the formation of a new holding company to be named Walgreens Boots Alliance, Inc. and also on the issuance of Walgreens Boots Alliance shares necessary to complete the second step of the strategic transaction.

The company expects the second step of the Alliance Boots transaction to close on December 31, subject to shareholder approval.

WAG closed Monday's trading at $74.27. In Tuesday's pre-market, the stock is up $2.93 or 3.95 percent to $77.20.