Walgreens Boots Alliance Reports Fiscal 2017 Second Quarter Results

Second quarter highlights

  • GAAP diluted net earnings per share increase 15.3 percent from the
    year-ago quarter, to $0.98; Adjusted diluted net earnings per share
    increase 3.8 percent to $1.36, up 6.1 percent on a constant currency
    basis
  • GAAP net earnings attributable to Walgreens Boots Alliance increase
    14.0 percent, to $1.1 billion; Adjusted net earnings attributable to
    Walgreens Boots Alliance increase 3.7 percent to $1.5 billion, up 6.2
    percent on a constant currency basis
  • Sales decrease 2.4 percent to $29.4 billion, increase 0.9 percent on a
    constant currency basis
  • GAAP operating income decreases 20.5 percent to $1.5 billion; Adjusted
    operating income decreases 4.9 percent to $2.0 billion, down 2.7
    percent on a constant currency basis
  • GAAP net cash provided by operating activities was $2.9 billion, an
    increase of $504 million from the year-ago quarter; Free cash flow was
    $2.6 billion, an increase of $560 million
  • Cost transformation program achieves $1.5 billion cost savings target

Share repurchase program

  • Company authorizes $1 billion share repurchase program

DEERFIELD, Ill.–(BUSINESS WIRE)–Walgreens Boots Alliance, Inc. (Nasdaq: WBA) today announced financial
results for the second quarter of fiscal 2017, which ended 28 February
2017.

Executive Vice Chairman and CEO Stefano Pessina said, “Our results this
quarter were in line with our expectations despite some challenging
conditions we faced in a number of markets. I am particularly pleased
with the growth in pharmacy volume and market share in the Retail
Pharmacy USA division, which saw the highest comparable prescription
growth in more than seven years. At the same time, we continue to work
toward gaining regulatory approval of the pending acquisition of Rite
Aid Corporation by the end of July, consistent with the amended merger
agreement announced in January.”

Overview of Second Quarter Results

Fiscal 2017 second quarter net earnings attributable to Walgreens Boots
Alliance determined in accordance with GAAP increased 14.0 percent to
$1.1 billion compared with the same quarter a year ago, while GAAP
diluted net earnings per share increased 15.3 percent to $0.98 compared
with the same quarter a year ago. The increases in GAAP net earnings and
GAAP net earnings per share primarily reflect the reduction in the fair
value of the company’s AmerisourceBergen Corporation warrants in the
year-ago quarter, partially offset by higher costs related to the
company’s cost transformation program in the quarter.

Adjusted fiscal 2017 second quarter net earnings attributable to
Walgreens Boots Alliance1 increased 3.7 percent to $1.5
billion, up 6.2 percent on a constant currency basis, compared with the
same quarter a year ago. Adjusted diluted net earnings per share for the
quarter increased 3.8 percent to $1.36, up 6.1 percent on a constant
currency basis, compared with the same quarter a year ago.

Sales in the second quarter were $29.4 billion, a decrease of 2.4
percent from the year-ago quarter, and an increase of 0.9 percent on a
constant currency basis. Excluding the impact of the leap year in 2016,
sales increased 2.2 percent on a constant currency basis.

GAAP operating income in the second quarter was $1.5 billion, a decrease
of 20.5 percent from the same quarter a year ago, primarily due to costs
related to the company’s cost transformation program. Adjusted operating
income in the second quarter was $2.0 billion, a decrease of 4.9 percent
from the same quarter a year ago, and a decrease of 2.7 percent on a
constant currency basis.

GAAP net cash provided by operating activities was $2.9 billion in the
second quarter, an increase of $504 million from the same quarter a year
ago, and free cash flow was $2.6 billion, an increase of $560 million.

Overview of Fiscal 2017 First Half Results

Fiscal 2017 first half net earnings attributable to Walgreens Boots
Alliance determined in accordance with GAAP increased 3.6 percent to
$2.1 billion compared with the same period a year ago, while GAAP
diluted net earnings per share increased 3.7 percent to $1.94 compared
with the same period a year ago.

Adjusted net earnings attributable to Walgreens Boots Alliance1
for the first six months of fiscal 2017 increased 4.8 percent to $2.7
billion, up 7.1 percent on a constant currency basis, compared with the
same period a year ago. Adjusted diluted net earnings per share for the
first six months of fiscal 2017 increased 5.1 percent to $2.46, up 7.7
percent on a constant currency basis, compared with the same period a
year ago.

Sales decreased 2.1 percent to $57.9 billion in the first six months of
fiscal 2017 compared with the same period a year ago. On a constant
currency basis, sales increased 1.0 percent.

GAAP operating income in the first half of fiscal 2017 was $2.9 billion,
a decrease of 12.1 percent from the same period a year ago. Adjusted
operating income in the first half of the fiscal year was $3.7 billion,
a decrease of 2.5 percent from the same period a year ago, and a
decrease of 0.3 percent on a constant currency basis.

GAAP net cash provided by operating activities was $3.4 billion in the
first half of fiscal 2017, an increase of $297 million from the same
period a year ago, and free cash flow was $2.7 billion, an increase of
$315 million.

Cost Transformation Program

The company achieved $1.5 billion in savings from its previously
announced cost transformation program ahead of schedule. The program is
on track to be completed by the end of fiscal 2017, as previously
announced. Accordingly, full program benefits will be recognized in
subsequent periods. The company now expects total pre-tax charges
associated with this program to its GAAP financial results will be
approximately $1.8 billion, consistent with the upper end of the
expected range when the expanded program was announced in April 2015.

Rite Aid Acquisition

As announced 30 January 2017, Walgreens Boots Alliance and Rite Aid
Corporation entered into an amendment and extension of their merger
agreement, which was originally announced 27 October 2015. Walgreens
Boots Alliance continues to be actively engaged in discussions with the
Federal Trade Commission (FTC) regarding the pending acquisition, and
the extension of the end date of the agreement to 31 July 2017 allows
the parties additional time to obtain regulatory approval. The
transaction is subject to approval by the holders of Rite Aid’s common
stock, the expiration or termination of applicable waiting periods under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and other customary closing conditions.

Walgreens Boots Alliance continues to expect that it will realize
synergies from the acquisition of Rite Aid in excess of $1 billion, to
be fully realized within three to four years of the closing of the
merger. These synergies, as previously disclosed, are expected to be
derived primarily from procurement, cost savings and other operational
matters.

Share Repurchase Program

On 3 April 2017 the company authorized a share repurchase program for up
to $1 billion of the company’s shares prior to the program’s expiration
on 31 December 2017.

Company Outlook

The company maintained its guidance for fiscal 2017 and continues to
expect adjusted diluted net earnings per share of $4.90 to $5.08.

As previously disclosed on 30 January 2017, the company no longer
expects any material accretion from Rite Aid in fiscal 2017.
Additionally, this guidance assumes current exchange rates for the rest
of the fiscal year.

Comparability of Results

Second quarter and first half 2017 results are not directly comparable
with the year-ago periods due to the leap year in 2016. Comparable sales
and comparable prescription figures for the second quarter are adjusted
for the leap year by excluding 29 February 2016 from the calculations.

Second Quarter Business Division Highlights

Retail Pharmacy USA:

Retail Pharmacy USA had second quarter sales of $21.8 billion, an
increase of 1.5 percent over the year-ago quarter. Sales in comparable
stores increased 2.4 percent compared with the same quarter a year ago.

Pharmacy sales, which accounted for 66.5 percent of the division’s sales
in the quarter, increased 3.7 percent compared with the year-ago
quarter. Comparable pharmacy sales increased 4.2 percent, primarily due
to increased volume. The division filled 246.7 million prescriptions
(including immunizations) adjusted to 30-day equivalents in the quarter,
an increase of 5.9 percent over the year-ago quarter. Prescriptions
filled in comparable stores increased 7.9 percent compared with the same
quarter a year ago, primarily due to Medicare Part D growth and volume
growth from previously announced strategic pharmacy partnerships. The
division’s retail prescription market share on a 30-day adjusted basis
in the second quarter increased approximately 100 basis points over the
year-ago quarter to 20.4 percent, as reported by IMS Health.
Reimbursement pressure and generics had a negative impact on comparable
sales growth, which was partially offset by brand inflation.

Retail sales decreased 2.7 percent in the second quarter compared with
the year-ago period, which includes the impact of the previously
announced closure of certain e-commerce operations. Comparable retail
sales were down 0.8 percent in the quarter, in what was a challenging
market, with declines in the consumables and general merchandise
category and the personal care category partially offset by solid growth
in the health and wellness category and the beauty category.

GAAP gross profit decreased 0.3 percent compared with the same quarter a
year ago and adjusted gross profit decreased 0.6 percent due to the
impact of the leap day in 2016. A decrease in retail gross profit was
partially offset by an increase in pharmacy.

GAAP second quarter selling, general and administrative expenses (SG&A)
as a percentage of sales increased 1.0 percentage point compared with
the year-ago quarter, primarily due to costs related to the cost
transformation program. On an adjusted basis, SG&A as a percentage of
sales decreased 0.1 percentage point in the same period.

GAAP operating income in the second quarter decreased 21.6 percent from
the year-ago quarter to $1.1 billion. Adjusted operating income in the
second quarter decreased 4.9 percent from the year-ago quarter to $1.6
billion.

Retail Pharmacy International:

Retail Pharmacy International had second quarter sales of $3.1 billion,
a decrease of 14.5 percent from the year-ago quarter mainly due to
currency translation. Sales decreased 1.9 percent on a constant currency
basis.

On a constant currency basis, comparable store sales decreased 0.9
percent compared with the year-ago quarter. Comparable pharmacy sales
decreased 3.7 percent on a constant currency basis, primarily due to the
negative impact of a reduction in pharmacy funding in the UK. Comparable
retail sales increased 0.6 percent on a constant currency basis,
reflecting growth in Boots in the UK, Republic of Ireland and Thailand.

GAAP gross profit decreased 16.3 percent compared with the same quarter
a year ago, mainly due to currency translation. On a constant currency
basis, adjusted gross profit decreased 4.0 percent, mainly due to the
reduction in pharmacy funding in the UK and the impact of the leap day
in the year-ago quarter.

GAAP SG&A as a percentage of sales increased 1.0 percentage point.
Adjusted SG&A as a percentage of sales, on a constant currency basis,
increased by 0.6 percentage point.

GAAP operating income in the second quarter decreased 33.8 percent from
the year-ago quarter to $198 million, while adjusted operating income
decreased 27.8 percent to $242 million, down 16.7 percent on a constant
currency basis.

Pharmaceutical Wholesale:

Pharmaceutical Wholesale had second quarter sales of $5.0 billion, a
decrease of 10.6 percent from the year-ago quarter, mainly due to
currency translation. On a constant currency basis, comparable sales
increased 5.2 percent, which was behind the company’s estimate of market
growth, weighted on the basis of country wholesale sales, due to
challenging market conditions in continental Europe.

GAAP operating income in the second quarter was $165 million, which
included $42 million from the company’s equity earnings in
AmerisourceBergen, compared with $134 million in the year-ago quarter.
Adjusted operating income increased 45.8 percent to $226 million, up
59.4 percent on a constant currency basis. Excluding $79 million in
adjusted equity earnings from AmerisourceBergen, adjusted operating
income was up 8.4 percent on a constant currency basis.

Conference Call

Walgreens Boots Alliance will hold a one-hour conference call to discuss
the second quarter results beginning at 8:30 a.m. Eastern time today, 5
April 2017. The conference call will be simulcast through the Walgreens
Boots Alliance investor relations website at: http://investor.walgreensbootsalliance.com.
A replay of the conference call will be archived on the website for 12
months after the call.

The replay also will be available from 11:30 a.m. Eastern time, 5 April
2017 through 12 April 2017, by calling +1 855 859 2056 within the USA
and Canada, or +1 404 537 3406 outside the USA and Canada, using replay
code 83158362.

1 Please see the “Supplemental Information (Unaudited)
Regarding Non-GAAP Financial Measures” at the end of this press release
for more detailed information regarding non-GAAP financial measures.

Cautionary Note Regarding Forward-Looking Statements: All statements
in this release that are not historical including, without limitation,
those regarding estimates of and goals for future financial and
operating performance (including those under “Company Outlook” above),
the expected execution and effect of our business strategies, our
cost-savings and growth initiatives and restructuring activities and the
amounts and timing of their expected impact, and our pending agreement
with Rite Aid and the transactions contemplated thereby and their
possible effects, are forward-looking statements made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. Words such as “expect,” “likely,” “outlook,” “forecast,”
“preliminary,” “would,” “could,” “should,” “can,” “will,” “project,”
“intend,” “plan,” “goal,” “guidance,” “target,” “aim,” “continue,”
“sustain,” “synergy,” “on track,” “on schedule,” “headwind,” “tailwind,”
“believe,” “seek,” “estimate,” “anticipate,” “may,” “possible,”
“assume,” and variations of such words and similar expressions are
intended to identify such forward-looking statements. These
forward-looking statements are not guarantees of future performance and
are subject to risks, uncertainties and assumptions, known or unknown,
that could cause actual results to vary materially from those indicated
or anticipated, including, but not limited to, those relating to the
impact of private and public third-party payers’ efforts to reduce
prescription drug reimbursements, fluctuations in foreign currency
exchange rates, the timing and magnitude of the impact of branded to
generic drug conversions and changes in generic drug prices, our ability
to realize synergies and achieve financial, tax and operating results in
the amounts and at the times anticipated, supply arrangements including
our commercial agreement with AmerisourceBergen, the arrangements and
transactions contemplated by our framework agreement with
AmerisourceBergen and their possible effects, the risks associated with
the company’s equity method investment in AmerisourceBergen, the
occurrence of any event, change or other circumstance that could give
rise to the termination, cross-termination or modification of any of our
contractual obligations, the amount of costs, fees, expenses and charges
incurred in connection with strategic transactions, whether the costs
associated with restructuring activities will exceed estimates, our
ability to realize expected savings and benefits from cost-savings
initiatives, restructuring activities and acquisitions in the amounts
and at the times anticipated, the timing and amount of any impairment or
other charges, the timing and severity of cough, cold and flu season,
changes in management’s assumptions, the risks associated with
governance and control matters, the ability to retain key personnel,
changes in economic and business conditions generally or in particular
markets in which we participate, changes in financial markets and
interest rates, the risks associated with international business
operations, including the risks associated with the proposed withdrawal
of the United Kingdom from the European Union, the risk of unexpected
costs, liabilities or delays, changes in vendor, customer and payer
relationships and terms, including changes in network participation and
reimbursement terms, risks of inflation in the cost of goods, risks
associated with the operation and growth of our customer loyalty
programs, competition, risks associated with new business areas and
activities, risks associated with acquisitions, divestitures, joint
ventures and strategic investments, including those relating to the
ability of the parties to satisfy the closing conditions (including,
without limitation, approval by the holders of Rite Aid’s common stock
and the expiration or termination of applicable waiting periods under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended)
and consummate the pending acquisition of Rite Aid and related matters
(including the pending divestiture transaction to sell certain Rite Aid
stores and assets to Fred’s, Inc.) on a timely basis or at all, the
risks associated with the integration of complex businesses, outcomes of
legal and regulatory matters, including with respect to regulatory
review and actions in connection with the pending acquisition of Rite
Aid and related matters, and risks associated with changes in laws,
regulations or interpretations thereof. These and other risks,
assumptions and uncertainties are described in Item 1A (Risk Factors) of
our Annual Report on Form 10-K for the fiscal year ended 31 August 2016,
which is incorporated herein by reference, and in other documents that
we file or furnish with the Securities and Exchange Commission. Should
one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary
materially from those indicated or anticipated by such forward-looking
statements. Accordingly, you are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date
they are made. Except to the extent required by law, we do not
undertake, and expressly disclaim, any duty or obligation to update
publicly any forward-looking statement after the date of this release,
whether as a result of new information, future events, changes in
assumptions or otherwise.

Please refer to the supplemental information presented below for
reconciliations of the non-GAAP financial measures used in this release
to the most comparable GAAP financial measure and related disclosures.

Notes to Editors:

About Walgreens Boots Alliance

Walgreens Boots Alliance (Nasdaq: WBA) is the first global pharmacy-led,
health and wellbeing enterprise.

The company was created through the combination of Walgreens and
Alliance Boots in December 2014, bringing together two leading companies
with iconic brands, complementary geographic footprints, shared values
and a heritage of trusted health care services through pharmaceutical
wholesaling and community pharmacy care, dating back more than 100 years.

Walgreens Boots Alliance is the largest retail pharmacy, health and
daily living destination across the USA and Europe. Walgreens Boots
Alliance and the companies in which it has equity method investments
together have a presence in more than 25* countries and employ more than
400,000* people. The company is a global leader in pharmacy-led, health
and wellbeing retail and, together with the companies in which it has
equity method investments, has over 13,200* stores in 11* countries as
well as one of the largest global pharmaceutical wholesale and
distribution networks, with over 390* distribution centers delivering to
more than 230,000** pharmacies, doctors, health centers and hospitals
each year in more than 20* countries. In addition, Walgreens Boots
Alliance is one of the world’s largest purchasers of prescription drugs
and many other health and wellbeing products.

The company’s portfolio of retail and business brands includes
Walgreens, Duane Reade, Boots and Alliance Healthcare, as well as
increasingly global health and beauty product brands, such as No7,
Botanics, Liz Earle and Soap & Glory.

In October 2016 Walgreens Boots Alliance received the United Nations
Foundation Global Leadership Award for its commitment to the UN’s
Sustainable Development Goals. The company also ranks No. 1 in the Food
and Drug Stores industry of Fortune magazine’s 2017 list of the World’s
Most Admired Companies.

More company information is available at www.walgreensbootsalliance.com.

* As of 31 August 2016, using publicly available information for
AmerisourceBergen.

** For 12 months ending 31 August 2016, using publicly available
information for AmerisourceBergen.

(WBA-ER)

 
WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In Millions, except per share amounts)
 
    Three Months Ended     Six Months Ended
February 28,   February 29, February 28,   February 29,

 

2017 2016 2017 2016
Sales $ 29,446 $ 30,184 $ 57,947 $ 59,217
Cost of sales   21,885     22,317     43,270     43,931  
Gross Profit 7,561 7,867 14,677 15,286
Selling, general and administrative expenses 6,124 6,007 11,810 11,958
Equity earnings in AmerisourceBergen   42         59      
Operating Income 1,479 1,860 2,926 3,328
 
Other (expense)   (15 )   (496 )   (14 )   (553 )
Earnings Before Interest and Income Tax Provision 1,464 1,364 2,912 2,775
 
Interest expense, net   172     140     345     278  
Earnings Before Income Tax Provision 1,292 1,224 2,567 2,497
 
Income tax provision 246 301 466 468
Post tax earnings from other equity method investments   16     9     28     20  
Net Earnings 1,062 932 2,129 2,049
 
Net earnings attributable to noncontrolling interests   2     2     15     9  
Net Earnings Attributable to Walgreens Boots Alliance, Inc. $ 1,060   $ 930   $ 2,114   $ 2,040  
 
Net earnings per common share:
Basic $ 0.98   $ 0.86   $ 1.96   $ 1.88  
Diluted $ 0.98   $ 0.85   $ 1.94   $ 1.87  
 
Dividends declared per share $ 0.375 $ 0.360 $ 0.750 $ 0.720
 
Weighted average common shares outstanding:
Basic   1,079.7     1,080.2     1,080.9     1,084.6  
Diluted   1,085.5     1,088.4     1,086.9     1,093.5  
 

WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In Millions)
       
February 28, August 31,
2017 2016
Assets
Current Assets:
Cash and cash equivalents $ 11,822 $ 9,807
Accounts receivable, net 5,674 6,260
Inventories 9,230 8,956
Other current assets   783   860
Total Current Assets   27,509   25,883
 
Non-Current Assets:
Property, plant and equipment, net 13,528 14,335
Goodwill 15,214 15,527
Intangible assets, net 9,650 10,302
Equity method investments 6,164 6,174
Other non-current assets   440   467
Total Non-Current Assets   44,996   46,805
Total Assets $ 72,505 $ 72,688
 
Liabilities and Equity
Current Liabilities:
Short-term borrowings $ 1,153 $ 323
Trade accounts payable 11,264 11,000
Accrued expenses and other liabilities 4,935 5,484
Income taxes   326   206
Total Current Liabilities   17,678   17,013
 
Non-Current Liabilities:
Long-term debt 17,758 18,705
Deferred income taxes 2,339 2,644
Other non-current liabilities   4,309   4,045
Total Non-Current Liabilities   24,406   25,394
Total Equity   30,421   30,281
Total Liabilities and Equity $ 72,505 $ 72,688
 

Contacts

Walgreens Boots Alliance, Inc.
Media Relations
USA /
Michael Polzin
+1 847 315 2935
or
International / Laura
Vergani
+44 (0)207 980 8585
or
Investor Relations
Gerald
Gradwell and Ashish Kohli
+1 847 315 2922

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