Walgreens selects proven performer as CEO following strong Q3

DEERFIELD, Ill. — Walgreens Boots Alliance appears to be just getting started. The company posted third-quarter EPS of $1.02 for the period ended May 31, which was 15 cents better than analyst estimates of 87 cents. However, revenue for the quarter came in at $28.8 billion, up 48.4%, against consensus estimates of $29.6 billion. Domestic operations were up 5.3% to $20.4 billion. 

 

Walgreens chairman James Skinner named Stefano Pessina acting CEO following the better-than-projected earnings result, noting that Pessina "is the very best person to achieve our vision to be a truly global healthcare champion."

 

The results justified financial analyst Jim Cramer's confidence in the company expressed Wednesday in a video from TheStreet. On Tuesday, Cramer outlined why Walgreens Boots Alliance was a good stock to hold. 

 

“In just six months since the strategic combination that formed Walgreens Boots Alliance, we are beginning to make progress in our operations, as we were able to deliver another strong quarter," Pessina, executive vice chairman and now the official CEO, said. "Our Retail Pharmacy USA division produced a solid increase in comparable prescriptions filled in the quarter, along with improved retail front-end margins and very good cost control," he said. "The fourth quarter is typically the slowest quarter because of seasonality in the business while prescription reimbursement pressure continues to impact our pharmacies, making retail margin expansion and cost control as important as ever.”

 

“In Walgreens Boots Alliance’s initial six months as a newly combined company, Stefano has done an extraordinary job leading the new enterprise, focusing our strategy while enhancing our financial performance,” Skinner said. “The integration of Walgreens and Alliance Boots is proceeding exceptionally well, with Stefano’s vision for the company driving the organization forward.”

 

The Retail Pharmacy USA division, whose principal retail pharmacy brands are Walgreens and Duane Reade, had third quarter sales of $20.4 billion, an increase of 5.3% over the year-ago quarter. Total sales in comparable drug stores increased 6.3% compared with the same quarter a year ago. Comparable drug store retail sales increased 1.6% in the third quarter with an increase in basket size partially offset by lower customer traffic compared with last year’s third quarter.

 

Pharmacy sales, which accounted for 66.1% of division sales in the quarter, increased 7% compared with the year-ago quarter while pharmacy sales in comparable stores increased 9.1%. The division filled 226 million prescriptions (including immunizations) on a 30-day adjusted basis in the quarter, an increase of 3.8% over last year’s third quarter. Prescriptions filled in comparable stores increased 4.1% compared with the same quarter last year. For the quarter ending May 31, the division’s retail prescription market share in the U.S. on a 30-day adjusted basis increased 20 basis points over a year ago to 19.3%, as reported by IMS Health.

 

Walgreens in the U.S. opened or acquired 104 drug stores in the first nine months of fiscal 2015, including 34 relocations, and closed 37 locations. As of May 31, the division operated 8,240 drugstores across all 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands.

 

Net earnings attributable to Walgreens Boots Alliance determined in accordance with GAAP for the fiscal 2015 third quarter increased 82.4% to $1.3 billion compared with the same quarter a year ago, while GAAP net earnings per diluted share increased 59.5% to $1.18 compared with the same quarter a year ago. 

 

The company announced today a 6.7% increase to its quarterly dividend to 36 cents per share. The increased dividend was declared by the board of directors on July 8, is payable Sept. 11 o stockholders of record Aug. 19, and raises the annual rate from $1.35 per share to $1.44 per share. This marks the 40th consecutive year Walgreens Boots Alliance or its predecessor company, Walgreen Co., has raised the dividend. The company remains committed to a long-term dividend payout ratio target of 30%-35%.

 

The Retail Pharmacy International division, whose principal retail brands are Boots in the U.K., Thailand, Norway, the Republic of Ireland and The Netherlands, Benavides in Mexico and Ahumada in Chile, had third quarter sales of $3.3 billion. On a pro forma constant currency basis, comparable store sales in the third quarter increased 3.2% compared with the same period a year ago. GAAP operating income was $205 million, while adjusted operating income was $249 million. 

 

The international division operated 4,565 pharmacy-led health and beauty retail stores in eight countries, a net increase of six stores since the end of the second quarter of fiscal 2015, for the period ended May 31.

 

Walgreens Boots Alliance also announced today that it has acquired Liz Earle Beauty, owner of the Liz Earle skincare brand. Liz Earle is an award-winning premium skincare range that uses naturally active ingredients and is recognized as one of the leading botanical brands in the U.K.

 

The Pharmaceutical Wholesale division, which mainly operates under the Alliance Healthcare brand, had third quarter sales of $5.7 billion. On a pro forma constant currency basis, sales increased 0.2% compared with the same period a year ago. GAAP operating income was $162 million, while adjusted operating income was $171 million.