Walgreens Earnings OK, Extends Rite Aid Merger Deadline

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Walgreens Boots Alliance Inc. (NASDAQ: WBA) reported fourth-quarter and fiscal-year 2016 results before markets opened Thursday. The drugstore chain reported adjusted diluted earnings per share (EPS) of $1.07 on net sales of $28.6 billion for the quarter. In the same period a year ago, Walgreen reported EPS of $0.88 on revenue of $28.52 billion. Fourth-quarter results also compare to the consensus estimates for EPS of $0.99 and $29.06 billion in sales.

For fiscal year 2016, EPS totaled $4.59, compared with 2015 EPS of $3.88 and an anaylsts’ consensus estimate of $4.51. Revenues rose to $117.4 billion, compared with $103.44 in 2015, but were a bit short of the consensus estimate of $117.9 billion.

On a GAAP basis, the company posted net income of $1 billion in the first quarter ($0.95 per share). Net sales and earnings in the quarter “reflect fluctuations in the quarterly fair value adjustments of the company’s AmerisourceBergen Corporation warrants.”

Walgreens Boots initiated fiscal year 2017 adjusted EPS guidance at $4.85 to $5.20, including a contribution of $0.05 to $0.12 from the pending acquisition of Rite Aid, based on expected store divestitures and the timing of the closing.

The company announced separately that it and Rite Aid have agreed to extend the deadline for the merger from October 27, 2016, to January 27, 2017.

Consensus estimates for 2017 adjusted earnings called for EPS of $5.03. Analysts have also tabbed full-year revenues at $122.52 billion. For the company’s fiscal first quarter, consensus estimates call for EPS of $1.17 on revenues of $30.07 billion.

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.

U.S. pharmacy sales totaled $20.7 billion in the quarter, up 4% year over year. Same-store sales rose 3.2%. Pharmacy sales accounted for 69% of total sales, up 6.2%, and same-store pharmacy sales rose 5%.

The company said its proposed acquisition of Rite Aid “is progressing as planned.” The company believes that it will be able to execute agreements to divest 500 to 1,000 stores to potential buyers, pending FTC approval, by the end of this calendar year, and now it expects its acquisition to close in early 2017.

Shares traded up about 1.9% in premarket trading Thursday, at $78.64, in a 52-week range of $71.50 to $95.74. The 12-month consensus price target on the stock was $93.10 before Thursday morning’s announcement.

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