Walgreens Boots Alliance Reports Fiscal 2019 Second Quarter Results
April 2, 2019Company Accelerates Business Transformation Priorities
Second quarter highlights, year-over-year
- Sales increased 4.6 percent to $34.5 billion
-
Operating income decreased 23.3 percent to $1.5 billion; Adjusted
operating income decreased 10.4 percent to $1.9 billion -
EPS decreased 8.3 percent to $1.24; Adjusted EPS decreased 5.4 percent
to $1.64
2019 fiscal year guidance
-
Fiscal 2019 adjusted EPS growth expected to be roughly flat at
constant currency rates, compared with previous guidance of 7 percent
to 12 percent growth
Long-term business model
- Existing transformation priorities reinforced and accelerated
-
Business model well positioned to deliver sustainable long-term growth
in adjusted EPS, at constant currency rates
Transformational Cost Management Program
-
Company increased targeted annual cost savings from in excess of $1
billion to in excess of $1.5 billion by fiscal 2022
DEERFIELD, Ill.–(BUSINESS WIRE)–Walgreens Boots Alliance, Inc. (Nasdaq: WBA) today announced financial
results for the second quarter of fiscal 2019, which ended February 28,
2019.
Executive Vice Chairman and CEO Stefano Pessina said, “The market
challenges and macro trends we have been discussing for some time
accelerated, resulting in the most difficult quarter we have had since
the formation of Walgreens Boots Alliance. During the quarter, we saw
significant reimbursement pressure, compounded by lower generic
deflation, as well as continued consumer market challenges in the U.S.
and UK. While we had begun initiatives to address these trends, our
response was not rapid enough given market conditions, resulting in a
disappointing quarter that did not meet our expectations. As a result,
we are now expecting roughly flat adjusted EPS growth for fiscal 2019.
“We are going to be more aggressive in our response to these rapidly
shifting trends. We are focusing on our operational strengths and
addressing weaknesses, making a number of senior appointments to bring
change and accelerating the digitalization and transformation of our
business. This will include expediting the execution of our partnership
initiatives, fully developing our in-store neighborhood health
destinations, re-imagining our front end retail offering, optimizing our
store footprint and increasing the annual savings goal of our
transformational cost management program from in excess of $1 billion to
more than $1.5 billion. As a result of these actions, our business model
will deliver improved performance in fiscal 2020, positioning us for
mid-to-high single-digit growth in adjusted EPS in the following years.”
Overview of Second Quarter Results
Fiscal 2019 second
quarter net earnings attributable to Walgreens Boots Alliance decreased
14.3 percent to $1.2 billion compared with the same quarter a year ago,
while net earnings per share1 decreased 8.3 percent to $1.24
compared with the same quarter a year ago.
Adjusted net earnings attributable to Walgreens Boots Alliance2
decreased 11.5 percent to $1.5 billion, down 10.6 percent on a constant
currency basis, compared with the same quarter a year ago. Adjusted
earnings per share were $1.64, a decrease of 5.4 percent on a reported
basis and a decrease of 4.3 percent on a constant currency basis,
compared with the same quarter a year ago.
Sales in the second quarter were $34.5 billion, an increase of 4.6
percent from the year-ago quarter, and an increase of 6.7 percent on a
constant currency basis, including the benefit from acquired Rite Aid
stores.
Operating income was $1.5 billion, a decrease of 23.3 percent from the
same quarter a year ago, primarily due to operating performance, costs
related to the Transformational Cost Management Program and prior year
impact of U.S. tax law changes related to AmerisourceBergen. Adjusted
operating income was $1.9 billion, a decrease of 10.4 percent from the
same quarter a year ago, and a decrease of 9.3 percent on a constant
currency basis, primarily due to rising reimbursement pressure in the
U.S. pharmacy business with fewer opportunities for mitigation as a
result of slowing deflation of generic medications. In addition,
performance was impacted by weak comparable store sales in U.S. retail
and a challenging market in the UK.
Net cash provided by operating activities was $735 million in the second
quarter, and free cash flow was $411 million.
Overview of Fiscal 2019 Year-to-Date Results
For the first
six months of fiscal 2019, net earnings attributable to Walgreens Boots
Alliance increased 5.1 percent to $2.3 billion compared with the same
period a year ago, while net earnings per share1 increased
12.0 percent to $2.42 compared with the same period a year ago.
Adjusted net earnings attributable to Walgreens Boots Alliance2
for the first six months of fiscal 2019 decreased 3.6 percent to $2.9
billion, down 2.8 percent on a constant currency basis, compared with
the same period a year ago. Adjusted earnings per share for the first
six months of fiscal 2019 were $3.09, an increase of 2.8 percent on a
reported basis and an increase of 3.6 percent on a constant currency
basis, compared with the same period a year ago.
Sales in the first six months of fiscal 2019 were $68.3 billion, an
increase of 7.2 percent from the same period a year ago, and an increase
of 9.0 percent on a constant currency basis.
Operating income in the first six months of fiscal 2019 was $2.9
billion, a decrease of 11.5 percent from the same period a year ago.
Adjusted operating income in the first six months of the fiscal year was
$3.7 billion, a decrease of 7.5 percent from the same period a year ago,
and a decrease of 6.6 percent on a constant currency basis.
Net cash provided by operating activities was $1.2 billion in the first
six months of fiscal 2019, and free cash flow was $401 million, impacted
by notable headwinds including cash tax payments, mainly from U.S. tax
reform, legal settlements and prior year working capital benefits from
the acquisition of Rite Aid stores.
Second Quarter Business Division Highlights
Retail Pharmacy USA:
Retail Pharmacy USA had second quarter
sales of $26.3 billion, an increase of 7.3 percent over the year-ago
quarter. Excluding the benefit from acquired Rite Aid stores, organic
sales growth was 1.6 percent in the quarter.
Pharmacy sales, which accounted for 71.9 percent of the division’s sales
in the quarter, increased 9.8 percent compared with the year-ago
quarter, reflecting higher prescription volumes from the acquisition of
Rite Aid stores, strong growth in central specialty and a 1.9 percent
increase in comparable pharmacy sales. The division filled 286.3 million
prescriptions, including immunizations, adjusted to 30-day equivalents
in the quarter, an increase of 6.4 percent over the year-ago quarter.
Prescriptions filled in comparable stores increased 1.8 percent from the
same quarter a year ago.
Retail prescription market share on a 30-day adjusted basis in the
second quarter increased approximately 90 basis points over the year-ago
quarter to 22.3 percent, as reported by IQVIA.
Retail sales increased 1.3 percent in the second quarter compared with
the year-ago period. Comparable retail sales were down 3.8 percent in
the quarter, primarily due to a weak cough, cold and flu season compared
with the year-ago quarter, continued de-emphasis of select products such
as tobacco and a decline in sales of seasonal merchandise.
Gross profit decreased 3.2 percent compared with the same quarter a year
ago and adjusted gross profit decreased 3.5 percent, primarily due to
reimbursement impacts in pharmacy.
Second quarter selling, general and administrative expenses (SG&A) as a
percentage of sales improved 1.4 percentage points compared with the
year-ago quarter, due to continued cost saving initiatives, sales mix
and bonus accrual reductions. On an adjusted basis, SG&A as a percentage
of sales improved 1.4 percentage points in the same period. The second
quarter of fiscal 2019 included $40 million of costs related to
previously announced store and labor investments.
Operating income in the second quarter decreased 12.6 percent from the
year-ago quarter to $1.2 billion. Adjusted operating income in the
second quarter decreased 11.9 percent from the year-ago quarter to $1.5
billion, including an adverse impact of 2.4 percentage points due to the
store and labor investments mentioned above.
Retail Pharmacy International:
Retail Pharmacy International
had second quarter sales of $3.1 billion, a decrease of 7.1 percent from
the year-ago quarter, reflecting an adverse currency impact of 5.9
percent. Sales decreased 1.2 percent on a constant currency basis,
mainly due to a 1.3 percent decline in Boots UK.
In the UK, comparable pharmacy sales decreased 1.5 percent and
comparable retail sales decreased 2.3 percent, with Boots UK broadly
maintaining market share amid weakness in its categories.
Gross profit decreased 8.9 percent compared with the same quarter a year
ago. On a constant currency basis, adjusted gross profit decreased 1.2
percent, due to lower sales.
SG&A as a percentage of sales increased 0.5 percentage point. Adjusted
SG&A as a percentage of sales, on a constant currency basis, was
unchanged, with SG&A expenses reduced by 1 percent compared with the
year-ago quarter.
Operating income in the second quarter decreased 22.6 percent from the
year-ago quarter to $192 million, while adjusted operating income
decreased 6.8 percent to $256 million, down 2.1 percent on a constant
currency basis. The quarter benefited from phasing from the first
quarter and bonus accrual reductions.
Pharmaceutical Wholesale:
Pharmaceutical Wholesale had
second quarter sales of $5.7 billion, a decrease of 0.3 percent from the
year-ago quarter, due to an adverse currency impact of 9.4 percent. On a
constant currency basis, sales increased 9.1 percent, primarily
reflecting growth in emerging markets and the UK.
Operating income in the second quarter was $100 million, which included
$83 million from the company’s equity earnings in AmerisourceBergen.
This compared with operating income of $323 million in the year-ago
quarter, which included $202 million from the company’s equity earnings
in AmerisourceBergen.
Adjusted operating income decreased 3.3 percent to $225 million due to
the impact of currency translation. On a constant currency basis,
adjusted operating income increased 3.0 percent, with sales growth and
improved SG&A as a percentage of sales more than offsetting lower gross
margin.
Company Outlook
The company reduced its adjusted EPS
guidance for fiscal 2019, from a range of 7 percent to 12 percent
growth, to roughly flat, at constant currency rates. On a reported
currency basis, the company anticipates approximately $0.04 cents per
share of adverse currency impact.
Long-Term Business Model
The company confirmed its existing
transformation priorities and announced it will be taking immediate
action to reinforce and accelerate them. With these actions, the
company’s business model aims to deliver improved performance in 2020,
and mid-to-high single-digit growth in adjusted EPS, at constant
currency rates, in the following years.
Transformational Cost Management Program
The company’s
global cost review, scheduled for completion by the end of April 2019,
has provided sufficient visibility to increase the annual cost savings
target from the transformational cost management program from in excess
of $1 billion to in excess of $1.5 billion by fiscal 2022. The program
includes divisional optimization initiatives, global smart spending,
global smart organization and digitalization of the enterprise to
transform long-term capabilities.
During the second quarter and since the quarter ended, the company has
taken decisive steps to reduce costs in the UK and to optimize the field
management structure in the U.S.
The company continues to anticipate that aspects of such initiatives
will result in significant restructuring and other special charges as
they are implemented. The company has recognized cumulative pre-tax
charges of $179 million for the six months ended February 28, 2019.
These charges primarily relate to the Pharmaceutical Wholesale and
Retail Pharmacy International divisions.
Dividends Declared
During the second quarter, the company
declared a regular quarterly dividend of 44 cents per share. The
dividend was payable March 12, 2019 to stockholders of record as of
February 15, 2019.
Conference Call
Walgreens Boots Alliance will hold a
one-hour conference call to discuss the second quarter results beginning
at 8:30 a.m. Eastern time today, April 2, 2019. 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, April 2,
2019 through April 9, 2019, by calling +1 800 585 8367 within the U.S.
and Canada, or +1 416 621 4642 outside the U.S. and Canada, using replay
code 1399812.
1 All references to earnings per share (EPS) are to diluted
EPS attributable to Walgreens Boots Alliance.
2 Please see the “Supplemental Information (Unaudited)
Regarding Non-GAAP Financial Measures” at the end of this press release
for more detailed information regarding non-GAAP financial measures
used, including all measures presented as “adjusted” or on a “constant
currency” basis, and free cash flow.
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 tax, financial and
operating performance and results (including those under “Company
Outlook,” “Long-Term Business Model” and “Transformational Cost
Management Program” above), the expected execution and effect of our
business strategies, our cost-savings and growth initiatives, pilot
programs and initiatives, and restructuring activities and the amounts
and timing of their expected impact and the delivery of annual cost
savings, and our amended and restated asset purchase agreement with Rite
Aid and the transactions contemplated thereby and their possible timing
and 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,” “pilot,” “would,” “could,” “should,” “can,” “will,”
“project,” “intend,” “plan,” “goal,” “guidance,” “target,” “aim,”
“transform,” “accelerate,” “model,” “long-term,”
“continue,” “sustain,” “synergy,” “on track,” “on schedule,”
“headwind,” “tailwind,” “believe,” “seek,” “estimate,” “anticipate,”
“upcoming,” “to come,” “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, the inherent risks, challenges and uncertainties
associated with forecasting financial results of large, complex
organizations in rapidly evolving industries, particularly over longer
time periods, 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 and charges associated
with restructuring initiatives will exceed estimates, our ability to
realize expected savings and benefits from cost-savings initiatives,
restructuring activities and acquisitions and joint ventures 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, risks related to pilot programs and new business initiatives
and ventures generally, including the risks that anticipated benefits
may not be realized, changes in management’s plans and 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, credit ratings and interest rates, the risks relating
to the terms, timing, and magnitude of any share repurchase activity,
the risks associated with international business operations, including
the risks associated with the proposed withdrawal of the United Kingdom
from the European Union and international trade policies, tariffs and
relations, 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 and the associated
impacts on volume and operating results, risks of inflation in the cost
of goods, risks associated with the operation and growth of our customer
loyalty programs, risks related to competition, including changes in
market dynamics, participants, product and service offerings, retail
formats and competitive positioning, risks associated with new business
areas and activities, risks associated with acquisitions, divestitures,
joint ventures and strategic investments, including those relating to
the acquisition of certain assets pursuant to our amended and restated
asset purchase agreement with Rite Aid, the risks associated with the
integration of complex businesses, regulatory restrictions and outcomes
of legal and regulatory matters, and risks associated with changes in
laws, including those related to the December 2017 U.S. tax law changes,
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 August 31,
2018, 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.
Please refer to the supplemental information presented below for
reconciliations of the non-GAAP financial measures used in this release
to the most comparable GAAP financial measure and related disclosures.
Certain amounts in the tables in the appendix to this press release
may not add due to rounding. All percentages have been calculated using
unrounded amounts for the three and six months ended February 28, 2019.
Notes to Editors:
About Walgreens Boots Alliance
Walgreens Boots Alliance (Nasdaq: WBA) is the first global pharmacy-led,
health and wellbeing enterprise. The company’s heritage of trusted
health care services through community pharmacy care and pharmaceutical
wholesaling dates back more than 100 years.
Walgreens Boots Alliance is the largest retail pharmacy, health and
daily living destination across the U.S. and Europe. Walgreens Boots
Alliance and the companies in which it has equity method investments
together have a presence in more than 25 countries and employ more than
415,000 people. The company is a global leader in pharmacy-led, health
and wellbeing retail and, together with its equity method investments,
has more than 18,500 stores in 11 countries as well as one of the
largest global pharmaceutical wholesale and distribution networks, with
more than 390 distribution centers delivering to more than 230,000
pharmacies, doctors, health centers and hospitals each year in more than
20 countries. In addition, Walgreens Boots Alliance is one of the
world’s largest purchasers of prescription drugs and many other health
and wellbeing products.
The company’s portfolio of retail and business brands includes
Walgreens, Duane Reade, Boots and Alliance Healthcare, as well as
increasingly global health and beauty product brands, such as No7, Soap
& Glory, Liz Earle, Sleek MakeUP and Botanics.
Walgreens Boots Alliance is proud to be a force for good, leveraging
many decades of experience and its international scale, to care for
people and the planet through numerous social responsibility and
sustainability initiatives that have an impact on the health and
wellbeing of millions of people.
Walgreens Boots Alliance is included in Fortune magazine’s 2019 list of
the World’s Most Admired Companies and ranked first in the food and
drugstore category. This is the 26th consecutive year that Walgreens
Boots Alliance or its predecessor company, Walgreen Co., has been named
to the list.
More company information is available at www.walgreensbootsalliance.com.
(WBA-ER)
| WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES | ||||||||||||||||
| CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS | ||||||||||||||||
| (UNAUDITED) | ||||||||||||||||
| (in millions, except per share amounts) | ||||||||||||||||
| Three months ended | Six months ended | |||||||||||||||
| February 28, | February 28, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Sales | $ | 34,528 | $ | 33,021 | $ | 68,321 | $ | 63,761 | ||||||||
| Cost of sales | 26,773 | 24,925 | 52,925 | 48,324 | ||||||||||||
| Gross profit | 7,754 | 8,096 | 15,395 | 15,437 | ||||||||||||
| Selling, general and administrative expenses | 6,320 | 6,321 | 12,599 | 12,231 | ||||||||||||
| Equity earnings in AmerisourceBergen | 83 | 202 | 121 | 90 | ||||||||||||
| Operating income | 1,517 | 1,977 | 2,918 | 3,296 | ||||||||||||
| Other income (expense) | 19 | 12 | 45 | (122 | ) | |||||||||||
| Earnings before interest and income tax provision | 1,536 | 1,989 | 2,963 | 3,174 | ||||||||||||
| Interest expense, net | 181 | 151 | 342 | 300 | ||||||||||||
| Earnings before income tax provision | 1,356 | 1,838 | 2,621 | 2,874 | ||||||||||||
| Income tax provision | 226 | 503 | 406 | 730 | ||||||||||||
| Post tax earnings from other equity method investments | 9 | 14 | 24 | 27 | ||||||||||||
| Net earnings | 1,138 | 1,349 | 2,238 | 2,171 | ||||||||||||
| Net earnings (loss) attributable to noncontrolling interests | (18 | ) | — | (41 | ) | 1 | ||||||||||
| Net earnings attributable to Walgreens Boots Alliance, Inc. | $ | 1,156 | $ | 1,349 | $ | 2,279 | $ | 2,170 | ||||||||
| Net earnings per common share: | ||||||||||||||||
| Basic | $ | 1.25 | $ | 1.36 | $ | 2.43 | $ | 2.17 | ||||||||
| Diluted | $ | 1.24 | $ | 1.36 | $ | 2.42 | $ | 2.16 | ||||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | 928.4 | 991.0 | 938.3 | 998.6 | ||||||||||||
| Diluted | 930.7 | 995.5 | 941.1 | 1,003.3 | ||||||||||||
| WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES | |||||||
| CONSOLIDATED CONDENSED BALANCE SHEETS | |||||||
| (UNAUDITED) | |||||||
| (in millions) | |||||||
|
February 28, |
August 31, |
||||||
| Assets | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 818 | $ | 785 | |||
| Accounts receivable, net | 7,828 | 6,573 | |||||
| Inventories | 10,188 | 9,565 | |||||
| Other current assets | 1,016 | 923 | |||||
| Total current assets | 19,851 | 17,846 | |||||
| Non-current assets: | |||||||
| Property, plant and equipment, net | 13,828 | 13,911 | |||||
| Goodwill | 17,027 | 16,914 | |||||
| Intangible assets, net | 11,932 | 11,783 | |||||
| Equity method investments | 6,683 | 6,610 | |||||
| Other non-current assets | 1,114 | 1,060 | |||||
| Total non-current assets | 50,584 | 50,278 | |||||
| Total assets | $ | 70,434 | $ | 68,124 | |||
| Liabilities and equity | |||||||
| Current liabilities: | |||||||
| Short-term debt | $ | 5,356 | $ | 1,966 | |||
| Trade accounts payable | 14,348 | 13,566 | |||||
| Accrued expenses and other liabilities | 5,436 | 5,862 | |||||
| Income taxes | 163 | 273 | |||||
| Total current liabilities | 25,303 | 21,667 | |||||
| Non-current liabilities: | |||||||
| Long-term debt | 12,685 | 12,431 | |||||
| Deferred income taxes | 1,982 | 1,815 | |||||
| Other non-current liabilities | 5,053 | 5,522 | |||||
| Total non-current liabilities | 19,719 | 19,768 | |||||
| Total equity | 25,413 | 26,689 | |||||
| Total liabilities and equity | $ | 70,434 | $ | 68,124 | |||
Contacts
Media Relations
U.S. / Fiona Ortiz +1 847 315 6402
International
+44 (0)20 7980 8585
Investor Relations
Gerald Gradwell and Jay Spitzer +1 847
315 2922