October 25, 2017 / 11:09 AM / a year ago

Walgreens beats profit estimates as new contracts provide boost

(Reuters) - U.S. drugstore chain Walgreens Boots Alliance Inc’s (WBA.O) quarterly profit and revenue beat Wall Street estimates, as the company filled millions of more drug prescriptions thanks to newly won contracts from pharmacy benefit managers.

FILE PHOTO: The logo of Walgreens is seen at their Times Square store in New York December 17, 2012. REUTERS/Andrew Kelly/File Photo

Walgreens, which in June scrapped plans to buy fellow pharmacy company Rite Aid Corp (RAD.N) after a two-year long wait for regulatory approval, has been under pressure from investors to grow drugstore sales faster.

Big contracts from pharmacy benefit managers have helped allay some of those concerns and helped Walgreens boost revenue in its latest quarter.

The company last year snatched a contract from larger rival CVS Health Corp (CVS.N) to fill prescriptions for Tricare, a Department of Defense healthcare program, and for customers of Prime Therapeutics, a Minnesota-based pharmacy benefit manager.

Tricare brought about 9.7 million new members to Walgreens, while Prime Therapeutics added 22 million.

Walgreens also formed a venture with Prime, called AllianceRX Walgreens Prime, to handle mail orders and specialty prescriptions for their combined customers.

“The formation of AllianceRX Walgreens Prime is primarily responsible for driving up prescription volumes (for Walgreens) including mail and specialty,” Moody’s Vice President Mickey Chadha said via email.

Sales at Walgreens’ U.S. pharmacies rose 12.6 percent in the fourth quarter ended Aug. 31, after the company filled 250.2 million prescriptions, up 9 percent from a year ago.

Walgreens also said it would review its U.S. stores network, following its acquisition of nearly 2,000 Rite Aid Corp (RAD.N) drugstores. The company expects the review to bring savings of about $300 million each year through 2020.

Still, Walgreens also expects to spend $750 million on acquisition costs and another $500 million on store conversions and refurbishing.

The impact of Hurricane Maria in Puerto Rico, where Walgreens is the largest drugstore chain, would reduce current-quarter profit by $90 million, the company said on a call with analysts.

Deerfield, Illinois-based Walgreens also said it expects 2018 adjusted earnings of $5.40 to $5.70 per share. The forecast was largely above analysts’ average estimate of $5.47, according to Thomson Reuters I/B/E/S.

Revenue rose 5.3 percent to $30.15 billion in the fourth quarter, topping analysts’ expectations of $29.93 billion.

Net income attributable to Walgreens fell 22 percent to $802 million, hurt mainly by the $325 million termination fee it paid Rite Aid after their failed merger.

Excluding one-time items, the company earned $1.31 per share, beating analysts’ expectations of $1.21.

Walgreens’ shares were slightly lower at $67.20 in morning trading.

Reporting by Gayathree Ganesan in Bengaluru; Editing by Sai Sachin Ravikumar

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