Walgreens Boots Alliance (NASDAQ:WBA)
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By Aisha Al-Muslim and Sharon Terlep
Walgreens Boots Alliance Inc. cut its earnings expectations for the fiscal year after the drugstore chain said it faced its most difficult quarter since the merger of Alliance Boots and Walgreens.
The Deerfield, Ill.-based chain said it made less money on prescription drugs, which drive the bulk of store sales, as new generics and government pressure to curb rebates paid to drugmakers drove prices down. Retail sales also fell due to a weak cough, cold and flu season and a shift away from sales of tobacco products.
The company said its profit fell to 14% to $1.16 billion in the most recent quarter.
"This has been a disappointing quarter and I am equally disappointed that we have had to reduce our guidance," Walgreens Chief Executive Stefano Pessina said in a call with analysts. He said other players in the industry face similar challenges but that there is "no excuse" for Walgreens performance.
"We will respond quickly to ensure we return to growth," he said.
Walgreens shares fell about 13% to $55.34 on Tuesday morning. The stock is down 12% over the past year.
Last month, rival CVS Health Corp. also offered a downbeat earnings projection for 2019, its first full year after buying insurer Aetna Inc. CVS said its results were being hurt by smaller benefits from the rollout of new generic drugs and the performance of Omnicare, its long-term-care pharmacy business.
CVS shares, which tumbled last month after its disappointing forecast, slipped another 4% early Tuesday following the Walgreens report.
Weak results from both companies "demonstrates that there is no relief in sight from reimbursement pressure permeating throughout the pharmacy retail sector," Moody's Vice President Mickey Chadha said.
For fiscal 2019, Walgreens now expects adjusted earnings per share at constant currency rates to be roughly flat, lower than its previous guidance for 7% to 12% growth.
For the second quarter, Walgreens said sales rose 4.6% to $34.53 billion as the company continues integrating Rite Aid stores. Analysts, according to Refinitiv, expected Walgreens to report sales of $34.56 billion.
In the quarter, U.S. retail pharmacy sales rose 7.3% to $26.3 billion, due in large part to higher prescription volumes from the acquisition of Rite Aid stores.
Same-store pharmacy sales increased 1.9%, while comparable retail sales were down 3.8%. Comparable retail sales were down primarily due to a weak cough, cold and flu season, the company said. Also playing a role in the decline were a drop in seasonable merchandise sales and a shift away from sales of products like tobacco.
"We are going to be more aggressive in our response to these rapidly shifting trends," Mr. Pessina said.
The company has been testing tobacco-free stores in the U.S. due to pressure from federal regulators, activists and some investors.
In early March, Walgreens shares fell for several days after the Food and Drug Administration in February called the company out for being a top violator among pharmacies illegally selling tobacco products to minors.
In response, Walgreens said it has a zero-tolerance policy on selling tobacco to minors and any employee found to be in violation is subject to termination.
In December, Walgreens said it was taking steps over three years to eliminate more than $1 billion in annual costs through a new plan.
After the disappointing quarter, Walgreens increased its annual cost-savings target to more than $1.5 billion by fiscal 2022.
The company expects to improve its performance in fiscal 2020, resulting in mid-to-high single-digit growth in adjusted earnings per share in the following years, it said.
The company's initiatives will result in significant restructuring and other special charges as they are implemented, the company said. The company recognized pretax charges of $179 million for the six months ended Feb. 28, related primarily to the pharmaceutical wholesale and retail pharmacy international divisions.
The drugstore chain has been shrinking its retail footprint as it searches for other avenues of growth to ward off competition from CVS Health and Amazon.com Inc.
Walgreens has struck about a dozen partnership deals in the past couple of years in a bid to increase revenue by increasing pharmacy orders and getting customers to make other in-store purchases.
Write to Aisha Al-Muslim at email@example.com and Sharon Terlep at firstname.lastname@example.org
(END) Dow Jones Newswires
April 02, 2019 10:08 ET (14:08 GMT)
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