Finanzas: Walgreens Boots Alliance Reports Fourth Quarter and Fiscal 2016 Results

 

Fourth quarter highlights

GAAP diluted net earnings per share increase to $0.95 from $0.02 in the year-ago quarter; Adjusted diluted net earnings per share increase 21.6 percent to $1.07
GAAP net earnings attributable to Walgreens Boots Alliance (WBA) increase to $1.0 billion compared with $26 million in the year-ago quarter; Adjusted net earnings attributable to Walgreens Boots Alliance increase 20.3 percent to $1.2 billion
Sales increase 0.4 percent to $28.6 billion, up 2.5 percent on a constant currency basis
GAAP operating income increases 36.4 percent to $1.1 billion; Adjusted operating income increases 7.2 percent to $1.6 billion, up 10.3 percent on a constant currency basis
Fiscal 2016 highlights


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GAAP diluted net earnings per share decrease 4.5 percent from the prior year, to $3.82; Adjusted diluted net earnings per share increase 18.3 percent to $4.59
GAAP net earnings attributable to Walgreens Boots Alliance decrease 1.1 percent to $4.2 billion; Adjusted net earnings attributable to Walgreens Boots Alliance increase 22.6 percent to $5.0 billion
Sales increase 13.4 percent to $117.4 billion, largely due to inclusion of Alliance Boots consolidated results for the entire year
GAAP operating income increases 28.6 percent to $6.0 billion; Adjusted operating income increases 17.1 percent to $7.2 billion, up 18.9 percent on a constant currency basis
GAAP net cash provided by operating activities increases $2.2 billion to $7.8 billion and free cash flow increases $2.1 billion to $6.5 billion, compared with the prior year
Fiscal 2017 guidance

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Company introduces guidance of $4.85 to $5.20 for fiscal year 2017 adjusted diluted net earnings per share
DEERFIELD, Ill.–(BUSINESS WIRE)– Walgreens Boots Alliance, Inc. (Nasdaq: WBA) today announced financial results for the fourth quarter and fiscal year 2016 that ended 31 August 2016.

Executive Vice Chairman and CEO Stefano Pessina said, “We have continued to make good progress in putting in place the building blocks for the future growth of the business. The exercise of the AmerisourceBergen warrants in August provides an example of the opportunities open to us to deploy capital, and the agreements we reached with Prime Therapeutics and with Express Scripts during the quarter demonstrate our commitment to a more collaborative and partnership-oriented approach. We believe this can help provide growth for our own company and that of our strategic partners while delivering better, more efficient and more effective service to patients and payers alike.”

Overview of Fourth Quarter Results

Fiscal 2016 fourth quarter net earnings attributable to Walgreens Boots Alliance determined in accordance with GAAP were $1.0 billion compared with $26 million in the same quarter a year ago, while GAAP diluted net earnings per share were $0.95 compared with $0.02 in the same quarter a year ago. The increases in GAAP net earnings and GAAP net earnings per share reflect fluctuations in the quarterly fair value adjustments of the company’s AmerisourceBergen Corporation warrants.

Adjusted fiscal 2016 fourth quarter net earnings attributable to Walgreens Boots Alliance1 increased 20.3 percent to $1.2 billion compared with the same quarter a year ago. Adjusted diluted net earnings per share for the quarter increased 21.6 percent to $1.07 compared with the same quarter a year ago.

Sales in the fourth quarter were $28.6 billion, an increase of 0.4 percent over the year-ago quarter, or 2.5 percent on a constant currency basis.

GAAP operating income in the fourth quarter was $1.1 billion, an increase of 36.4 percent from the same quarter a year ago. Adjusted operating income in the fourth quarter was $1.6 billion, an increase of 7.2 percent from the same quarter a year ago.

In June, as previously announced, the company achieved its goal set in 2012 to reach at least $1 billion in combined net synergies in fiscal 2016 relating to the strategic combination with Alliance Boots. This excluded the synergy benefits relating to the company’s strategic, long-term relationship with AmerisourceBergen, the benefits of refinancing legacy Alliance Boots debt at a lower cost and the pending Rite Aid acquisition.

GAAP net cash provided by operating activities was $2.7 billion, and free cash flow was $2.2 billion, in the fourth quarter.

Overview of Fiscal Year Results

Fiscal 2016 net earnings attributable to Walgreens Boots Alliance determined in accordance with GAAP decreased 1.1 percent to $4.2 billion, while GAAP diluted net earnings per share decreased 4.5 percent to $3.82 compared with the prior year. The decrease reflects fluctuations in the fair value adjustments of the company’s AmerisourceBergen warrants and the prior year gain on the previously held equity interest in Alliance Boots, which was largely offset by increased operating income.

Adjusted net earnings attributable to Walgreens Boots Alliance1 in fiscal 2016 increased 22.6 percent to $5.0 billion compared with the prior year. Adjusted diluted net earnings per share in the fiscal year increased 18.3 percent to $4.59 compared with the prior year.

Sales increased 13.4 percent to $117.4 billion in fiscal 2016 compared with the prior year, due to the inclusion of Alliance Boots consolidated results for the entire period and an increase at Retail Pharmacy USA.

GAAP operating income in fiscal 2016 was $6.0 billion, an increase of 28.6 percent from the prior year. Adjusted operating income in the fiscal year was $7.2 billion, an increase of 17.1 percent from the prior year.

GAAP net cash provided by operating activities increased $2.2 billion to $7.8 billion, and free cash flow increased $2.1 billion to $6.5 billion compared with the prior year.

The company’s cost transformation program is on track to deliver $1.5 billion in savings by the end of fiscal 2017. The company now estimates that total pre-tax charges to its GAAP financial results associated with the three-year restructuring program will be between $1.3 billion and $1.5 billion, which is $300 million lower than the previously estimated range.

Rite Aid Acquisition

Walgreens Boots Alliance’s pending acquisition of Rite Aid Corporation, which was announced 27 October 2015, is progressing as planned. 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 on 8 September 2016, Walgreens Boots Alliance remains actively engaged with the Federal Trade Commission (FTC) regarding its review of the pending acquisition, and continues to expect that the most likely outcome will be that the parties will be required to divest between 500 and 1,000 stores. The company believes that it will be able to execute agreements to divest these stores to potential buyers, pending FTC approval, by the end of calendar year 2016, and now expects its acquisition of Rite Aid will close in early calendar 2017.

Taking into account its current expectation of store 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. 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.

Company Outlook

The company today introduced guidance of $4.85 to $5.20 for fiscal year 2017 adjusted diluted net earnings per share. 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.

Fourth Quarter Business Segment Highlights

Retail Pharmacy USA:

Retail Pharmacy USA had fourth quarter sales of $20.7 billion, an increase of 4.0 percent over the year-ago quarter. Sales in comparable stores increased 3.2 percent compared with the same quarter a year ago.

Pharmacy sales, which accounted for 69 percent of the division’s sales in the quarter, increased 6.2 percent compared with the year-ago quarter. Comparable pharmacy sales increased 5.0 percent. The division filled 229.5 million prescriptions (including immunizations) adjusted to 30-day equivalents in the quarter, an increase of 3.7 percent over last year’s fourth quarter. Prescriptions filled in comparable stores increased 3.9 percent compared with the same quarter last year, 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 fourth quarter increased approximately 40 basis points over the year-ago quarter to 19.3 percent, as reported by IMS Health.2

Retail sales decreased 0.5 percent in the fourth quarter compared with the year-ago period. Comparable retail sales were down 0.3 percent in the quarter, primarily due to lower sales of certain consumables and seasonal items, partially offset by higher sales in the health and wellness and beauty categories. By the end of the fiscal year the first phase of the new, differentiated beauty offering had reached more than 1,600 stores across the U.S.

GAAP gross profit dollars increased 2.4 percent compared with the same quarter a year ago. Adjusted gross profit dollars increased 0.5 percent.

GAAP fourth quarter selling, general and administrative expenses as a percentage of sales decreased 1.6 percentage points versus the year-ago period, or a decrease of 0.9 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 fourth quarter increased 52.4 percent over the year-ago quarter to $779 million. Adjusted operating income in the fourth quarter increased 4.4 percent over the year-ago quarter to $1.1 billion. The increase in adjusted operating income was primarily driven by increased pharmacy volume, procurement efficiencies and cost controls. The increase in GAAP operating income was also affected by higher cost transformation and LIFO charges in the prior year quarter.

Retail Pharmacy International:

Retail Pharmacy International had fourth quarter sales of $3.0 billion, a decrease of 10.9 percent over the year-ago quarter due to the negative impact of currency translation, with sales increasing by 1.4 percent on a constant currency basis.

On a constant currency basis, comparable store sales decreased 0.6 percent compared with the year-ago quarter. Comparable pharmacy sales were flat on a constant currency basis as the previously disclosed loss of certain institutional sales contracts in Chile offset growth in other markets. Comparable retail sales decreased 1.0 percent on a constant currency basis, due to weaker performance in the UK.

GAAP operating income in the fourth quarter increased 4.6 percent over the year-ago quarter to $205 million, while adjusted operating income increased 2.1 percent to $247 million, up 15.7 percent on a constant currency basis.

To improve comparability, certain classification changes have been made to prior period sales, cost of sales and selling, general and administrative expenses. These changes have no impact on operating income.

Pharmaceutical Wholesale:

Pharmaceutical Wholesale had fourth quarter sales of $5.4 billion, a decrease of 6.2 percent over the year-ago quarter. On a constant currency basis, excluding acquisitions and dispositions, comparable sales increased 2.9 percent, which was marginally behind the company’s estimate of market growth weighted on the basis of country wholesale sales.

GAAP operating income in the fourth quarter was $156 million, which included $34 million from the company’s equity earnings in AmerisourceBergen, compared with $133 million in the year-ago period. Adjusted operating income increased 31.6 percent to $208 million, up 39.2 percent on a constant currency basis, of which 31.6 percentage points were due to equity earnings in AmerisourceBergen.

As previously disclosed, on 25 August 2016 Walgreens Boots Alliance exercised its second tranche of warrants to purchase approximately 22.7 million shares of AmerisourceBergen common stock for an aggregate payment of approximately $1.19 billion, increasing its ownership to approximately 24 percent.

Comparability of Results

Following the strategic combination with Alliance Boots on 31 December 2014, Walgreens Boots Alliance results for the three months ended 31 August 2015, and the three months and fiscal year ended 31 August 2016, include the results of Alliance Boots on a fully consolidated basis, while the fiscal year ended 31 August 2015 includes the results of Alliance Boots for eight months (January through August 2015) on a fully consolidated basis and as equity income from Walgreen Co.’s pre-closing 45 percent interest in Alliance Boots for four months (September through December 2014).

Walgreens Boots Alliance has organized its operations and reports results in three segments: Retail Pharmacy USA, Retail Pharmacy International and Pharmaceutical Wholesale. Segmental reporting includes results of operations, the allocation of synergy benefits including Walgreens Boots Alliance Development GmbH (WBAD) results, and the allocation of combined corporate costs for periods subsequent to 31 December 2014. The company has determined that it is impracticable to allocate historical results to the current segmental presentation. Accordingly, Retail Pharmacy USA segment results for periods prior to 31 December 2014 include all corporate costs of Walgreen Co., the full consolidated results of WBAD and equity income from Walgreen Co.’s pre-closing 45 percent interest in Alliance Boots. The company has also reclassified certain prior period amounts for purposes of increasing consistency and comparability between the segments.

Fiscal year period-over-period comparisons of results require consideration of the foregoing factors and are not directly comparable.

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