Walgreens tops 2Q profit expectations, narrows 2016 forecast

Walgreens beat Wall Street’s fiscal second quarter expectations as total sales jumped, but the nation’s biggest drugstore chain remained conservative with its outlook while it deals with several pressures on its business.

The Deerfield, Illinois, company said Tuesday that it would again raise only the low end of its fiscal 2016 forecast by 5 cents per share, as it did in January. The drugstore chain has yet to bump up the top of that forecast range, which it announced in October.

Walgreens Boots Alliance Inc. runs more than 13,000 drugstores in 11 countries.

The chain has faced challenges like government pressure in the United States and abroad on prescription drug pricing, which hurts the company’s profit margin on those drugs. It has been dealing with sluggish sales from store areas outside its pharmacies.

Foreign exchange rates also have been a drag on overseas sales. In the United States, a mild cold, cough and flu season compared to a strong one last year affected results.

Walgreens has countered these pressures by cutting costs and tightening its business. It also is in deal-making mode. The company said last month that it will spend nearly $1.2 billion to build its stake in AmerisourceBergen, the pharmaceutical wholesaler that supplies its drugstores, mail order and specialty pharmaceutical businesses. It also detailed a partnership with Optum, the pharmacy benefits manager run by the health insurer UnitedHealth Group Inc.

In addition to those deals, Walgreens is buying rival drugstore chain Rite Aid Corp. for more than $9 billion, a deal the companies expect to close in the second half of this year. That combination could create a drugstore chain with more than 12,700 U.S. locations, or far more than CVS Health Corp. operates.

In its fiscal second quarter, Walgreens earnings fell 54 per cent to $930 million due largely to an accounting change it booked in 2015 after completing the acquisition of European health and beauty retailer Alliance Boots.

Earnings, adjusted for one-time gains and costs, came to $1.31 per share in the most recent quarter.

Revenue climbed about 14 per cent to $30.18 billion compared to last year’s quarter, which included one month before Walgreens closed the Alliance Boots deal at the end of 2014.

“We view this as a good performance, particularly given the weak cough, cold, flu season this year,” global Chief Financial Officer George Fairweather told analysts during a conference call.

Analysts expected, on average, earnings of $1.27 per share on $30.72 billion, according to Zacks Investment Research.

For fiscal 2016, Walgreens now expects earnings of between $4.35 and $4.55 per share, not counting any Rite Aid deal gains.

Analysts forecast, on average, earnings of $4.48 per share, according to FactSet.

Walgreens shares fell more than 4 per cent, or $3.60, to $82.71 in midday trading Tuesday. Its shares are down almost 4 per cent over the past year.


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