Walgreens Cuts Earnings Guidance After a Challenging Second Quarter -- 3rd Update
02 Avril 2019 - 04:23PM
Dow Jones News
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 aisha.al-muslim@wsj.com and Sharon
Terlep at sharon.terlep@wsj.com
(END) Dow Jones Newswires
April 02, 2019 10:08 ET (14:08 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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