Walgreen Company Q3 Conference Call Summary: Positive Earnings, Lack of Guidance

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Walgreen Company WAG reported its third quarter 2014 conference call this morning.

The company passed analysts expectations of EPS, pulled away its previous given guidance for 2016, and gave color on its recent acquisition with Alliance Boots.

Walgreens performed well in the third quarter with increase prescription refills and increase foot traffic, but the retailer also made claims of reimbursement pressure and generic drug inflation hurting margins.

Highlights from the call

  • GAAP EPS of $0.91 for Q3
  • Walgreens reported strong performance in the third quarter, with $19.4 billion in revenue, Adjusted operating income of $1.3 billion.
  • Lower GAAP tax rate of 31.5 percent contribute to high performance compared to 38.7 percent from a year ago.
  • Adjusted SG&A increased by 2.9 percent.
  • Management withdrew its 2016 goals previously given and expects to give new guidance in the Fall of 2014.
  • Alliance Boots acquisition going well with positive combined synergies of $367 million so far, combined synergies expect to come between $400 to $450 million when deal is complete, after tax synergies reported at $41 million, the deals adjusted EPS acceleration is between $0.06 to $0.07. Walgreens expects to release a call in regards to Alliance Boot combined merger in four to six weeks.
  • The company has experienced headwinds with reimbursement pressure and generic drug inflation. Generic drug inflation and reimbursement pressure have been negatively affecting margins. Generic inflation had the biggest impact of the two in the third quarter, compared to reimbursement pressure, because it was not as anticipated by corporate.
    Walgreens was anticipating more generic deflation than inflation, like they have previously experienced. Luckily the company has fewer brand to generic drug switches.
  • Strong performance in prescription refills.
  • Front end comp grew by 2.2 percent, front end margins also grew.
  • By the end of May, Walgreen had 81 million rewards member and 1.5 million Balance card rewards members.
  • Positive growth in specialty business. Plans of expanding Boots brands with beauty segment. Boots No7 is the number one brand sold, also number one brand on website.
  • Pharmacy script comp up 1.1 percent for the quarter. Walgreens filled two million prescription within the quarter. Plans of expanding vaccines and other preventable service.
  • Comp prescription sales increased by 3.2 percent, retail scripts increased 1.1 percent.
  • Adjusted gross margin decreased by 90 basis points due to fewer generic drug release, inflation, reimbursement pressure, and other minor reasons added.
    Gross profit adjusted increase 2.2 percent.
  • Net interest expense of $35 million, compared to $50 million a year ago.
  • Accounts payable decreased 6.5 percent.
  • Significant impacts of consolidation in the industry, medicare part D was greater in the quarter hurting margins
  • ACA volume of 8 million.
  • Expanded ESI inventory from 30 to 90 days.
  • Smart 90 Express Scripts with customers that need 90 day script refills.
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Posted In: EarningsNews
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