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Walgreens Boots Alliance Reports Fiscal 2016 Second Quarter Results

The following excerpt is from the company's SEC filing.

Adjusted second quarter net earnings attributable to Walgreens Boots Alliance per diluted share increase 11.0 percent to $1.31 compared with the year-ago period; GAAP net earnings attributable to Walgreens Boots Alliance per diluted share decrease 56.0 percent to $0.85

Adjusted second quarter net earnings attributable to Walgreens Boots Alliance increase 14.4 percent to $1.4 billion compared with the year-ago period; GAAP net earnings attributable to Walgreens Boots Alliance decrease 54.5 percent to $0.9 billion

GAAP operating cash flow totals $2.4 billion in the quarter, while free cash flow total s $2.0 billion in the quarter

Company raises by 5 cents per share its low end of guidance for fiscal year 2016 anticipated adjusted net earnings per diluted share attributable to Walgreens Boots Alliance to $4.35 to $4.55

DEERFIELD, Ill., 5 April 2016 Walgreens Boots Alliance, Inc. (Nasdaq: WBA) today announced financial results for the second quarter and first six months of fiscal year 2016 that ended 29 February 2016.

Executive Vice Chairman and CEO Stefano Pessina said, I am pleased with how we are working across the company to transform our businesses and position ourselves for success in rapidly changing markets. In addition, we continued to make good progress in the quarter in reducing costs and establishing more efficient working practices, which contributed to overall adjusted earnings growth. Looking ahead, we remain on track to achieve our expectations for this fiscal year, as we work to mitigate lower pharmacy reimbursement rates and challenging retail sales environments.

Overview of Second Quarter Results

Fiscal 2016 second quarter net earnings attributable to Walgreens Boots Alliance determined in accordance with GAAP decreased 54.5 percent to $0.9 billion compared with the same quarter a year ago, while GAAP net earnings attributable to Walgreens Boots Alliance per diluted share decreased 56.0 percent to $0.85 compared with the same quarter a year ago. The decreases in GAAP net earnings and GAAP net earnings per share were due to last years second quarter non-cash gain of $814 million, or $0.77 cents per diluted share, associated with the remeasurement to fair value on 31 December 2014 of the companys previously-held equity investment in Alliance Boots, and fluctuations in the quarterly fair value adjustments of the companys AmerisourceBergen warrants.

Adjusted fiscal 2016 second quarter net earnings attributable to Walgreens Boots Alliance

increased 14.4 percent to $1.4 billion compared with the same quarter a year ago. Adjusted net earnings attributable to Walgreens Boots Alliance per diluted share for the quarter increased 11.0 percent to $1.31 compared with the same quarter a year ago. Fiscal 2016 second quarter earnings adjustments were a net increase to GAAP net earnings attributable to Walgreens Boots Alliance of $493 million or 46 cents per diluted share.

Net sales in the second quarter increased 13.6 percent to $30.2 billion compared with the same quarter a year ago, largely due to the full consolidation of Alliance Boots for the entire quarter this year, while foreign currency translation adversely impacted sales by approximately $750 million or 2.4 percent.

Combined net synergies were $329 million in the fiscal 2016 second quarter and $617 million in the first six months of fiscal 2016. The company continues to expect to reach at least $1.0 billion in combined net synergies in fiscal 2016 relating to the strategic combination with Alliance Boots. This excludes the synergy benefits related to the companys strategic, long-term relationship with AmerisourceBergen, the benefits of refinancing the legacy Alliance Boots indebtedness at a lower cost and the proposed Rite Aid acquisition.

Walgreens Boots Alliance GAAP operating cash flow totaled $2.4 billion in the second quarter, while the company generated free cash flow of $2.0 billion in the quarter.

Overview of Fiscal 2016 First Half Results

For the first six months of fiscal 2016, net earnings attributable to Walgreens Boots Alliance determined in accordance with GAAP decreased 29.5 percent to $2.0 billion compared with the same period a year ago, while GAAP net earnings attributable to Walgreens Boots Alliance per diluted share decreased 35.1 percent to $1.87 compared with the same period a year ago.

for the first six months of fiscal 2016 increased 28.2 percent to $2.6 billion compared with the same period a year ago. Adjusted net earnings attributable to Walgreens Boots Alliance per diluted share for the first six months of fiscal 2016 increased 18.2 percent to $2.34 compared with the same period a year ago. Fiscal 2016 first half earnings adjustments were a net increase to GAAP net earnings attributable to Walgreens Boots Alliance of $515 million or 47 cents per diluted share.

Net sales increased 28.4 percent to $59.2 billion for the first six months of fiscal 2016 compared with the same period a year ago, largely due to the inclusion of Alliance Boots consolidated results for the entire period.

Walgreens Boots Alliance GAAP operating cash flow totaled $3.1 billion in the first six months of fiscal 2016, while the company generated free cash flow of $2.4 billion during the period.

Rite Aid Acquisition

Walgreens Boots Alliances proposed acquisition of Rite Aid Corporation, which was announced 27 October 2015, is progressing as planned with Rite Aids stockholders approving the transaction on 4 February 2016. The transaction is subject to 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 is continuing its integration planning and continues to expect the transaction to close in the second half of calendar 2016.

Company Outlook

The company is raising by 5 cents per share its low end of guidance for fiscal year 2016 anticipated adjusted net earnings per diluted share attributable to Walgreens Boots Alliance to $4.35 to $4.55.

This guidance continues to assume no material accretion from the proposed acquisition of Rite Aid; equity income from AmerisourceBergen on a two-month reporting lag; and no significant changes in currency exchange rates.

Second Quarter Business Segment Highlights

Retail Pharmacy USA:

The Retail Pharmacy USA division, whose principal retail pharmacy brands are Walgreens and Duane Reade, had second quarter total sales of $21.5 billion, an increase of 2.1 percent over the year-ago quarter. Sales in comparable stores increased 2.2 percent compared with the same quarter a year ago.

Pharmacy sales, which accounted for 65.0 percent of the divisions total sales in the quarter, increased 3.2 percent compared with the year-ago quarter, while comparable pharmacy sales increased 3.7 percent. The division filled 233 million prescriptions (including immunizations) adjusted to 30-day equivalents in the quarter, an increase of 3.9 percent over last years second quarter, while the reported incidence of flu across the USA declined approximately 16 percent compared with the year-ago quarter, according to IMS Health. Prescriptions filled in comparable stores increased 2.8 percent compared with the same quarter last year, driven by growth in Medicare Part D prescriptions, while a weak cough, cold and flu season had a negative impact of approximately 30 basis points. The divisions retail prescription market share on a 30-day adjusted basis in the second quarter increased approximately 20 basis points over the year-ago quarter to 19.5 percent, as reported by IMS Health.

Comparable retail sales decreased 0.3 percent in the second quarter primarily due to soft cough, cold and flu product sales, which had an estimated negative impact of approximately 100 basis points on comparable retail sales in the quarter. The division saw strong sales in giftable products during the holiday season while wellness products, such as vitamins and first aid, and the companys product brands, such as No7, also performed well in the quarter.

Adjusted gross profit dollars for the division grew by $162 million, or 2.8 percent, to $6.0 billion compared with the same quarter a year ago, primarily driven by increased pharmacy volume and a 10 basis point increase in adjusted gross profit margin. GAAP gross profit dollars for the division grew $149 million to $5.9 billion compared with the same quarter a year ago.

Adjusted second quarter selling, general and administrative expenses in the division increased by $13 million, or 0.3 percent, to $4.3 billion compared with the year-ago quarter. The strong cost control resulted from continued focus on store efficiencies and corporate costs. GAAP selling, general and administrative expenses in the division decreased by $89...


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