DEERFIELD, Ill. (BUSINESS WIRE), January 05, 2017 - Walgreens Boots Alliance, Inc. (Nasdaq: WBA) today announced financial results for the first quarter of fiscal 2017, which ended 30 November 2016.
Fiscal 2017 first quarter net earnings attributable to Walgreens Boots Alliance determined in accordance with GAAP decreased 5.0 percent to $1.1 billion compared with the same quarter a year ago, while GAAP diluted net earnings per share decreased 4.0 percent to $0.97 compared with the same quarter a year ago. The decreases in GAAP net earnings and GAAP net earnings per share primarily reflect a lower impact of UK tax rate reductions.
Adjusted fiscal 2017 first quarter net earnings attributable to Walgreens Boots Alliance1 increased 6.1 percent to $1.2 billion, up 8.2 percent on a constant currency basis, compared with the same quarter a year ago. Adjusted diluted net earnings per share for the quarter increased 6.8 percent to $1.10, up 9.7 percent on a constant currency basis, compared with the same quarter a year ago.
Sales in the first quarter were $28.5 billion, a decrease of 1.8 percent from the year-ago quarter, and an increase of 1.1 percent on a constant currency basis.
GAAP operating income in the first quarter was $1.4 billion, a decrease of 1.4 percent from the same quarter a year ago. Adjusted operating income in the first quarter was $1.7 billion, an increase of 0.4 percent from the same quarter a year ago, and an increase of 2.8 percent on a constant currency basis.
GAAP net cash provided by operating activities was $525 million and free cash flow was $147 million in the first quarter.
Walgreens Boots Alliance is actively engaged in discussions with the Federal Trade Commission (FTC) regarding its pending acquisition of Rite Aid Corporation, which was announced 27 October 2015. The company is working toward a close of the acquisition in the early part of this calendar year. 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.
As announced 20 December 2016, Walgreens Boots Alliance and Rite Aid have entered into an agreement to sell 865 Rite Aid stores and certain assets related to store operations to Fred's, Inc. for $950 million in an all-cash transaction. The divestiture transaction is subject to FTC approval, the approval and completion of the pending acquisition of Rite Aid by Walgreens Boots Alliance and other customary closing conditions.
Taking into account the expected divestitures, Walgreens Boots Alliance continues to expect that the acquisition will be accretive to its adjusted diluted net earnings per share in the first full year after closing of the transaction. The company also continues to expect that it will realize synergies from the acquisition in excess of $1 billion, to be fully realized within three to four years of closing of the merger. These synergies have been updated where practicable and, as previously disclosed, are expected to be derived primarily from procurement, cost savings and other operational matters.
The company raised the lower end of its guidance for fiscal year 2017 by 5 cents per share and now anticipates adjusted diluted net earnings per share of $4.90 to $5.20.
This guidance assumes accretion of $0.05 to $0.12 from Rite Aid and is based on the above disclosure regarding expected store divestitures and timing of closing. Additionally, this guidance assumes current exchange rates for the rest of the fiscal year and continuation of its normal anti-dilutive share buyback program.
Retail Pharmacy USA had first quarter sales of $20.7 billion, an increase of 1.4 percent over the year-ago quarter. Sales in comparable stores increased 1.1 percent compared with the same quarter a year ago.
Pharmacy sales, which accounted for 69.1 percent of the division's sales in the quarter, increased 2.5 percent compared with the year-ago quarter. Comparable pharmacy sales increased 2.0 percent. The division filled 237.6 million prescriptions (including immunizations) adjusted to 30-day equivalents in the quarter, an increase of 3.0 percent over the year-ago quarter. Prescriptions filled in comparable stores increased 3.4 percent compared with the same quarter a year ago, primarily due to continued growth in Medicare Part D volume. The division's retail prescription market share on a 30-day adjusted basis in the first quarter increased approximately 40 basis points over the year-ago quarter to 19.5 percent, as reported by IMS Health. Growth in comparable sales resulted from increased pharmacy volume and brand inflation, partially offset by reimbursement pressure and the impact of generics.
Retail sales decreased 0.9 percent in the first 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 0.5 percent in the quarter, due to declines in the consumables and general merchandise category and in the personal care category, partially offset by increases in the health and wellness category and beauty category. Since the end of the first quarter, the company has completed the first phase of the rollout of its new, differentiated beauty offering in more than 1,800 stores.
GAAP gross profit decreased 0.1 percent from the year-ago quarter. Adjusted gross profit increased 0.1 percent from the year-ago quarter.
GAAP first quarter selling, general and administrative expenses (SG&A) as a percentage of sales decreased 0.7 percentage point compared with the year-ago quarter, a decrease of 0.5 percentage point on an adjusted basis. These results demonstrate continuing benefits from the company's previously announced $1.5 billion cost transformation program.
GAAP operating income in the first quarter increased 7.5 percent from the year-ago quarter to $1.1 billion. Adjusted operating income in the first quarter increased 3.7 percent from the year-ago quarter to $1.3 billion.
Retail Pharmacy International had first quarter sales of $3.0 billion, a decrease of 14.4 percent from the year-ago quarter due to the negative impact of currency translation. Sales increased 0.5 percent on a constant currency basis.
On a constant currency basis, comparable store sales decreased 0.1 percent compared with the year-ago quarter. Comparable pharmacy sales decreased 0.5 percent on a constant currency basis, primarily due to a reduction in government pharmacy funding in the UK, which was partially offset by growth in other international markets. Comparable retail sales increased 0.2 percent on a constant currency basis, reflecting growth in all countries except Chile and Mexico.
GAAP gross profit decreased 17.4 percent compared with the same quarter a year ago, largely due to currency translation. On a constant currency basis, adjusted gross profit decreased 2.7 percent, primarily due to lower margins in the UK.
GAAP SG&A as a percentage of sales increased 1.1 percentage points, primarily reflecting higher depreciation compared with the year-ago quarter. Adjusted SG&A as a percentage of sales, on a constant currency basis, increased by 0.7 percentage point.
GAAP operating income in the first quarter decreased 39.7 percent from the year-ago quarter to $182 million, while adjusted operating income decreased 32.4 percent to $213 million, down 21.6 percent on a constant currency basis.
Pharmaceutical Wholesale had first quarter sales of $5.4 billion, a decrease of 6.5 percent from the year-ago quarter. On a constant currency basis, comparable sales increased 4.7 percent, which was slightly ahead of the company's estimate of market growth weighted on the basis of country wholesale sales.
GAAP operating income in the first quarter was $160 million, which included $17 million from the company's equity earnings in AmerisourceBergen Corporation, compared with $143 million in the year-ago quarter. Adjusted operating income increased 34.9 percent to $224 million, up 45.2 percent on a constant currency basis. Excluding $58 million in adjusted equity earnings from AmerisourceBergen, adjusted operating income was up 10.2 percent on a constant currency basis, with cost benefits outweighing margin pressures.
Walgreens Boots Alliance will hold a one-hour conference call to discuss the first quarter results beginning at 8:30 a.m. Eastern time today, 5 January 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 January 2017 through 12 January 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 30360241.
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 our ability to satisfy the closing conditions 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 changes in legislation, 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.
Comparable sales are presented on a constant currency basis for the Retail Pharmacy and Pharmaceutical Wholesale divisions. In the first quarter of fiscal 2017 compared to the year-ago quarter, the Retail Pharmacy International division's comparable store sales on a reported currency basis decreased 14.8 percent, comparable pharmacy sales on a reported currency basis decreased 14.6 percent and comparable retail sales on a reported currency basis decreased 15.0 percent. The Pharmaceutical Wholesale division's comparable sales excluding acquisitions and dispositions on a reported currency basis decreased 2.7 percent.
(1) Presented on a pre-tax basis. The comparable prior period has been recast in the fourth quarter fiscal 2016 accordingly to reflect the tax impact of adjustments as a single adjustment. There has been no change in Net earnings attributable to Walgreens Boots Alliance, Inc., Diluted net earnings per share, Adjusted net earnings attributable to Walgreens Boots Alliance, Inc. or Adjusted diluted net earnings per share from those previously reported.
Operating Income for Pharmaceutical Wholesale includes Equity earnings in AmerisourceBergen. As a result of the two month reporting lag, Operating Income for the three month period ended November 30, 2016 includes AmerisourceBergen equity earnings for the period of July 1, 2016 through September 30, 2016.
(2) Operating Margins and Adjusted Operating Margins have been calculated excluding Equity earnings in AmerisourceBergen.
(3) To improve comparability, certain classification changes were made to prior period Sales, Cost of sales and Selling, general and administrative expenses. These changes had no impact on Operating Income. The reclassifications were made in the fourth quarter of fiscal 2016 and were set out in the appendix to the presentation of that quarter's earnings.
USA International Wholesale Eliminations Inc.
(1) To improve comparability, certain classification changes were made to prior period Sales, Cost of sales and Selling, general and administrative expenses. These changes had no impact on Operating Income. The reclassifications were made in the fourth quarter of fiscal 2016 and were set out in the appendix to the presentation of that quarter's earnings.