Walgreens misses by $0.01, revs in-line with March 5 preannouncement; raises Alliance Boots synergy target
Reports Q2 (Feb) earnings of $0.91 per share, excluding non-recurring items, $0.01 worse than the Capital IQ Consensus Estimate of $0.92; revenues rose 5.1% year/year to $19.61 bln (in-line with March 5 preannouncement) vs. the $19.54 bln consensus.
- Front-end comparable store sales (those open at least a year) increased 2.0% in the second quarter, customer traffic in comparable stores decreased 1.4% and basket size increased 3.4%, while total sales in comparable stores increased 4.3%.
- GAAP total gross profit dollars increased $43 million, or 0.8%, compared with the year-ago second quarter, with gross profit margins decreasing 1.3 % points versus the year-ago quarter to 28.8 as a%age of sales. Adjusted gross profit dollars increased $22 million, or 0.4%, compared with the year-ago second quarter. Pharmacy gross profit dollars were primarily impacted by the shift in the generic drug wave from a peak in the prior year to a trough in the first half of fiscal 2014. A less severe flu season in this year's second quarter compared with a year ago also negatively impacted pharmacy gross profit dollar growth. Front-end margins decreased as the company invested in promotions. The LIFO provision was $51 million in this year's second quarter versus $72 million last year.
- "Our second quarter performance, in spite of expected headwinds from slower generic drug introductions, comparisons with last year's flu season and severe weather, was marked by solid top-line growth driven by record quarterly sales and record second-quarter prescriptions filled," said President and CEO Greg Wasson. "We also continued to gain prescription market share while we maintained a firm hold on our costs. "We head into the second half of the year with nearly 80 million active members in our Balance® Rewards loyalty program and with expectations that the generic drug headwind that affected the first half will ease and turn around by the end of the year.
- In addition, our joint synergy program with Alliance Boots is expected to exceed its second-year estimate, and we are bringing critical elements of the Well Experience to additional stores." The combined synergies for Walgreens and its strategic partner, Alliance Boots, in the first half of fiscal 2014 were ~$236 million. The joint synergy program is now estimated to deliver second-year combined synergies of $375-$425 million, an increase from the previous second-year estimate of $350-$400 million. Alliance Boots contributed 8 cents per diluted share to Walgreens second quarter 2014 adjusted results. The co estimates that the accretion from Alliance Boots in the third quarter of fiscal 2014 will be an adjusted 13 to 14 cents per diluted share. This estimate does not include amortization expense, the impact of AmerisourceBergen warrants or one-time transaction costs, and reflects the company's current estimates of IFRS to GAAP conversion and foreign exchange rates.