Walgreens Boots Alliance Reports Fiscal 2016 First Quarter Results

  • Adjusted first quarter net earnings attributable to Walgreens Boots
    Alliance per diluted share increase 32.1 percent to $1.03 compared
    with the year-ago period; GAAP net earnings attributable to Walgreens
    Boots Alliance per diluted share increase 13.5 percent to $1.01
  • Adjusted first quarter net earnings attributable to Walgreens Boots
    Alliance increase 51.1 percent to $1.1 billion compared with the
    year-ago period; GAAP net earnings attributable to Walgreens Boots
    Alliance increase 30.6 percent to $1.1 billion
  • GAAP operating cash flow totals $732 million in the quarter, while
    free cash flow totals $392 million
  • Company raises by 5 cents per share its low end of guidance for
    fiscal year 2016 anticipated adjusted net earnings per diluted share
    attributable to Walgreens Boots Alliance to $4.30 to $4.55

DEERFIELD, Ill.–(BUSINESS WIRE)–Walgreens Boots Alliance, Inc. (Nasdaq: WBA) today announced financial
results for the first quarter 2016 that ended 30 November 2015.

Executive Vice Chairman and CEO Stefano Pessina said, “The year has
started with a comparatively strong first quarter, as we expected. Our
ongoing work to control costs across Walgreens Boots Alliance and
improve adjusted operating income margins is growing earnings overall.
Although it is early in the year, we are on track to deliver against our
expectations.

“The work to renew and update our businesses, in order to meet the
opportunities and challenges of our ever-changing markets, is a core
strength that we must embrace as routine across our enterprise. Our
ability to deploy tools and strategies that address these dynamics,
generating continued growth across Walgreens Boots Alliance, and the
commitment I see from our team give me confidence that we will deliver
what we have signaled for 2016 and beyond.”

Overview of First Quarter Results

Fiscal 2016 first quarter net earnings attributable to Walgreens Boots
Alliance determined in accordance with GAAP increased 30.6 percent to
$1.1 billion compared with the same quarter a year ago, while GAAP net
earnings attributable to Walgreens Boots Alliance per diluted share
increased 13.5 percent to $1.01 compared with the same quarter a year
ago.

Adjusted fiscal 2016 first quarter net earnings attributable to
Walgreens Boots Alliance1 increased 51.1 percent to $1.1
billion compared with the same quarter a year ago. Adjusted net earnings
attributable to Walgreens Boots Alliance per diluted share for the
quarter increased 32.1 percent to $1.03 compared with the same quarter a
year ago. Fiscal 2016 first quarter earnings adjustments were a net
increase to GAAP net earnings attributable to Walgreens Boots Alliance
of $22 million or 2 cents per diluted share.

Net sales in the first quarter increased 48.5 percent to $29.0 billion
compared with the same quarter a year ago, largely due to the inclusion
of Alliance Boots consolidated results.

Combined net synergies in the fiscal 2016 first quarter were $288
million. The company continues to expect to reach at least $1.0 billion
in combined net synergies in fiscal 2016 relating to the strategic
combination with Alliance Boots. This excludes the synergy benefits
related to the company’s strategic, long-term relationship with
AmerisourceBergen, the benefits of refinancing the legacy Alliance Boots
indebtedness at a lower cost and the proposed Rite Aid acquisition.

Walgreens Boots Alliance GAAP operating cash flow totaled $732 million
in the first quarter, while the company generated free cash flow of $392
million in the quarter.

Rite Aid Acquisition

Walgreens Boots Alliance’s proposed acquisition of Rite Aid Corporation
is progressing as planned. The transaction, which was announced 27
October 2015, is subject to the approval of Rite Aid’s stockholders, 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.

Rite Aid has scheduled a special meeting of its stockholders for 4
February 2016 to, among other things, consider and vote on a proposal to
approve the Agreement and Plan of Merger related to the proposed
acquisition.

As a standard part of the regulatory process in connection with the
Federal Trade Commission’s (FTC) review, Walgreens Boots Alliance and
Rite Aid last month each received, as expected, a request for additional
information from the FTC in connection with the proposed acquisition.

Walgreens Boots Alliance continues to expect the transaction to close in
the second half of calendar 2016.

The company’s integration planning continues. In addition, in connection
with the acquisition, the company last month completed the placement of
$5 billion term loan facilities and the syndication of a new $7.8
billion bridge facility. These new facilities replaced the company’s
previously reported $12.8 billion bridge facility commitment. Drawing
under the facilities is subject to the closing of the acquisition.

Company Outlook

The company is raising by 5 cents per share its low end of guidance for
fiscal year 2016 anticipated adjusted net earnings per diluted share
attributable to Walgreens Boots Alliance to $4.30 to $4.55.

This guidance continues to assume no material accretion from the
proposed acquisition of Rite Aid.

Business Segment Highlights

Retail Pharmacy USA:

The Retail Pharmacy USA division, whose principal retail pharmacy brands
are Walgreens and Duane Reade, had first quarter total sales of $20.4
billion, an increase of 4.2 percent over the year-ago quarter. Sales in
comparable stores increased 5.8 percent compared with the same quarter a
year ago.

Pharmacy sales, which accounted for 68.4 percent of division total sales
in the quarter, increased 6.7 percent compared with the year-ago
quarter, while comparable pharmacy sales increased 9.3 percent. The
company attributed the increase in pharmacy sales in part to growth in
Medicare Part D and an increase in focus on pharmacy customer care.

The division filled 231 million prescriptions (including immunizations)
adjusted to 30-day equivalents in the quarter, an increase of 4.1
percent over last year’s first quarter, while the reported incidence of
flu across the USA declined 10.7 percent compared with the year-ago
quarter, according to IMS Health. Prescriptions filled in comparable
stores increased 4.7 percent compared with the same quarter last year.
The division’s retail prescription market share on a 30-day adjusted
basis in the first quarter increased approximately 20 basis points over
the year-ago quarter to 19.2 percent, as reported by IMS Health.
Walgreens new U.S. fulfillment agreements with Valeant Pharmaceuticals
International Inc., announced on 15 December 2015, are expected to
enhance the division’s pharmacy market share growth as the agreements
are rolled out in calendar 2016.

Comparable retail sales decreased 0.6 percent in the first quarter
primarily due to a reduction in unprofitable promotions and the
transitioning of seasonal items away from holiday decorations and toward
higher quality, giftable items.

Adjusted gross profit dollars for the division grew $143 million to $5.5
billion compared with the same quarter a year ago. At the same time,
gross profit margins were negatively impacted, as expected, by lower
pharmacy reimbursement rates, an increase in Medicare Part D
prescriptions and the mix of specialty medications.

Adjusted first quarter selling, general and administrative expenses in
the division decreased by $89 million, or 2.1 percent, compared with the
year-ago quarter. The strong cost control resulted from good progress
within the division as part of Walgreens Boots Alliance’s previously
announced $1.5 billion cost transformation program, designed to
restructure and invest in the company’s future in a way that is better
for customers and simpler for employees, resulting in a faster and more
agile company.

The division’s GAAP operating income in the fiscal 2016 first quarter
decreased 2.5 percent over the year-ago quarter to $1.0 billion.
Adjusted operating income in the first quarter increased 11.2 percent
over the year-ago quarter to $1.2 billion.

The fiscal 2016 first quarter for the Retail Pharmacy USA division
includes results of operations, the allocation of synergy benefits
including Walgreens Boots Alliance Development GmbH (WBAD) and an
allocation of combined corporate costs. The fiscal 2015 first quarter
included 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. Excluding the impact from Alliance
Boots equity income, the division’s adjusted operating income in the
first quarter increased 22.9 percent over the year-ago quarter.

Retail Pharmacy International:

The Retail Pharmacy International division, whose principal retail
brands are Boots in the UK, Thailand, Norway, the Republic of Ireland
and The Netherlands, Benavides in Mexico and Ahumada in Chile, had first
quarter total sales of $3.5 billion. On a pro forma constant currency
basis, comparable store sales in the first quarter increased 2.2 percent
compared with the same period a year ago, with particularly strong
growth in Mexico and the Republic of Ireland.

Comparable pharmacy sales increased 3.8 percent in the first quarter
compared with last year’s first quarter, driven by good growth in
dispensing and pharmacy services in the UK and Mexico.

Comparable retail sales increased 1.3 percent in the quarter compared
with the same period a year ago, with strong growth in Ireland. Boots UK
also grew due to good performances in retail healthcare and beauty,
supported by continued growth in boots.com.

GAAP operating income was $302 million, while adjusted operating income
was $315 million.

Pharmaceutical Wholesale:

The Pharmaceutical Wholesale division, which mainly operates under the
Alliance Healthcare brand, had first quarter total sales of $5.8
billion. On a pro forma constant currency basis and excluding
acquisitions and dispositions, comparable sales increased 3.1 percent
compared with the same period a year ago. Sales growth in the quarter
was particularly strong in Norway, while solid growth continued in
Germany and Turkey, two of the division’s largest markets.

GAAP operating income was $143 million, while adjusted operating income
was $166 million.

Comparability of Results

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
the allocation of synergy benefits, including WBAD’s results, and the
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.

Following the combination, the company eliminated the three-month
reporting lag and recast prior period results with no lag. The
combination on 31 December 2014 also means fiscal year 2015 reporting
includes the results of Alliance Boots for eight months (January through
August 2015) on a fully consolidated basis and four months (September
through December 2014) as equity income from Walgreen Co.’s pre-closing
45 percent interest.

The company’s balance sheet reflects the full consolidation of Alliance
Boots assets and liabilities as a result of the close of the combination
on 31 December 2014. The company’s purchase accounting remains
preliminary as contemplated by U.S. generally accepted accounting
principles (GAAP) and, as a result, there may be upon further review
future changes to the value, as well as allocation, of the acquired
assets and liabilities, associated amortization expense, goodwill and
the gain on the previously held equity interest.

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

Conference Call

Walgreens Boots Alliance will hold a one-hour conference call to discuss
the first quarter results beginning at 8:30 a.m. Eastern time today, 7
January 2016. 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, 7
January 2016 through 14 January 2016, by calling 855-859-2056 within the
USA and Canada, or 404-537-3406 outside the USA and Canada, using replay
code 93731993.

1 Please see the “Reconciliation of Non-GAAP Financial
Measures” table and accompanying disclosures at the end of this press
release for more detailed information regarding non-GAAP financial
measures herein, including the items reflected in adjusted net earnings
calculations.

Cautionary Note Regarding Forward-Looking Statements: All
statements in this release that are not historical including, without
limitation, estimates of and goals for future financial and operating
performance (including those under “Company Outlook” above), the
expected execution and effect of our business strategies, our
cost-savings and growth initiatives and restructuring activities and the
amounts and timing of their expected impact, and our pending agreement
with Rite Aid and the transactions contemplated thereby and their
possible 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,” “would,” “could,” “should,” “can,” “will,” “project,”
“intend,” “plan,” “goal,” “guidance,” “target,” “continue,” “sustain,”
“synergy,” “on track,” “believe,” “seek,” “estimate,” “anticipate,”
“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 that
could cause actual results to vary materially from those indicated,
including, but not limited to, those relating to the impact of private
and public third-party payers’ efforts to reduce prescription drug
reimbursements, the impact of generic prescription drug inflation, the
timing and magnitude of the impact of branded to generic drug
conversions, our ability to realize anticipated synergies and achieve
anticipated financial, tax and operating results in the amounts and at
the times anticipated, supply arrangements including our commercial
agreement with AmerisourceBergen Corporation, the arrangements and
transactions contemplated by our framework agreement with
AmerisourceBergen and their possible effects, the risks associated with
equity investments in AmerisourceBergen including whether the warrants
to invest in AmerisourceBergen will be exercised and the ramifications
thereof, 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 actual costs associated with restructuring activities will
exceed estimates, our ability to realize expected savings and benefits
from cost-savings initiatives, restructuring activities and acquisitions
in the amounts and at the times anticipated, the timing and amount of
any impairment or other charges, changes in management’s assumptions,
the risks associated with governance and control matters, the ability to
retain key personnel, changes in economic and business conditions
generally or in the markets in which we participate, changes in
financial markets, interest rates and foreign currency exchange rates,
the risks associated with international business operations, 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, risks of inflation in the cost of
goods, risks associated with the operation and growth of our customer
loyalty programs, risks associated with acquisitions, divestitures,
joint ventures and strategic investments, including our ability to
satisfy the closing conditions and consummate the pending acquisition of
Rite Aid and related financing matters on a timely basis or at all, the
risks associated with the integration of complex businesses, subsequent
adjustments to preliminary purchase accounting determinations, outcomes
of legal and regulatory matters, including with respect to regulatory
review and actions in connection with the pending acquisition of Rite
Aid, and changes in legislation, 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 31 August 2015, 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.

Notes to Editors:

About Walgreens Boots Alliance

Walgreens Boots Alliance (Nasdaq: WBA) is the first global pharmacy-led,
health and wellbeing enterprise.

The company was created through the combination of Walgreens and
Alliance Boots in December 2014, bringing together two leading companies
with iconic brands, complementary geographic footprints, shared values
and a heritage of trusted health care services through pharmaceutical
wholesaling and community pharmacy care, dating back more than 100 years.

The company employs more than 370,000* people and has a presence in more
than 25* countries; it is the largest retail pharmacy, health and daily
living destination in the USA and Europe. Including its equity method
investments, Walgreens Boots Alliance is a global leader in
pharmacy-led, health and wellbeing retail with over 13,100* stores in
11* countries. The company includes one of the largest global
pharmaceutical wholesale and distribution networks with over 350*
distribution centers delivering to more than 200,000** pharmacies,
doctors, health centers and hospitals each year in 19* countries. In
addition, Walgreens Boots Alliance is one of the world’s largest
purchasers of prescription drugs and many other health and wellbeing
products.

Its 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, Botanics, Liz Earle and
Soap & Glory. More company information is available at www.walgreensbootsalliance.com.

* As at 31 August 2015 including equity method investments

** For 12 months ended 31 August 2015 including equity method
investments

(WBA-ER)

WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED AND SUBJECT TO RECLASSIFICATION)
(In Millions, Except Per Share Amounts)
 
    Three Months Ended
    November 30,   November 30,
2015 2014
Net sales $ 29,033 $ 19,554
Cost of sales   21,531     14,258
Gross Profit 7,502 5,296
Selling, general and administrative expenses 6,034 4,456
Equity earnings in Alliance Boots       214
Operating Income 1,468 1,054
 
Other income (expense)   (57 )   199
Earnings Before Interest and Income Tax Provision (EBIT) 1,411 1,253
 
Interest expense, net   138     55
Earnings Before Income Tax Provision 1,273 1,198
 
Income tax provision 167 321
Post tax earnings from equity method investments   11    
Net Earnings 1,117 877
 
Net earnings attributable to noncontrolling interests   7     27
Net Earnings Attributable to Walgreens Boots Alliance, Inc. $ 1,110   $ 850
 
Net earnings per common share attributable to Walgreens Boots
Alliance, Inc. :
Basic $ 1.02   $ 0.90
Diluted $ 1.01   $ 0.89
 
Dividends declared per share $ 0.3600 $ 0.3375
 
Average shares outstanding 1,089.0 945.8
Dilutive effect of stock options   9.6     10.2
Average diluted shares   1,098.6     956.0
 
WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED AND SUBJECT TO RECLASSIFICATION)
(In Millions)
   
November 30, August 31,
2015 2015
Assets
Current Assets:
Cash and cash equivalents $ 2,570 $ 3,000
Accounts receivable, net 6,821 6,849
Inventories 9,884 8,678
Other current assets   956   1,130
Total Current Assets 20,231 19,657
 
Non-Current Assets:
Property, plant and equipment, at cost, less accumulated
depreciation and amortization
14,878 15,068
Goodwill 16,195 16,372
Intangible assets 12,040 12,351
Other non-current assets   5,313   5,334
Total Non-Current Assets   48,426   49,125
Total Assets $ 68,657 $ 68,782
 
Liabilities and Equity
Current Liabilities:
Short-term borrowings $ 1,083 $ 1,068
Trade accounts payable 10,643 10,088
Accrued expenses and other liabilities 4,886 5,225
Income taxes   262   176
Total Current Liabilities 16,874 16,557
 
Non-Current Liabilities:
Long-term debt 13,194 13,315
Deferred income taxes 3,313 3,538
Other non-current liabilities   4,122   4,072
Total Non-Current Liabilities   20,629   20,925
Equity   31,154   31,300
Total Liabilities and Equity $ 68,657 $ 68,782
 
WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED AND SUBJECT TO RECLASSIFICATION)
(In Millions)
 
  Three Months Ended
November 30,   November 30,
2015 2014
Cash Flows from Operating Activities:
Net earnings $ 1,117 $ 877
Adjustments to reconcile net earnings to net cash provided by
operating activities –
Depreciation and amortization 382 319
Change in fair value of warrants and related amortization 57 (296 )
Deferred income taxes (158 ) 58
Stock compensation expense 31 31
Equity earnings from equity method investments (11 ) (214 )
Other 115 94
Changes in operating assets and liabilities –
Accounts receivable, net (166 ) (353 )
Inventories (1,306 ) (436 )
Other current assets (38 ) (20 )
Trade accounts payable 740 874
Accrued expenses and other liabilities (329 ) (80 )
Income taxes 231 204
Other non-current assets and liabilities   67     (27 )
Net cash provided by operating activities   732     1,031  
 
Cash Flows from Investing Activities:
Additions to property, plant and equipment (340 ) (335 )
Proceeds from sale leaseback transactions 54 291
Proceeds related to sale of business 43
Proceeds from sale of other assets 40 3
Business and intangible asset acquisitions, net of cash received (72 ) (13 )
Purchases of short-term investments held to maturity (25 ) (17 )
Proceeds from short-term investments held to maturity 25 16
Other   4      
Net cash used for investing activities   (271 )   (55 )
 
Cash Flows from Financing Activities:
Proceeds from short-term borrowings, net 52
Proceeds from issuance of long-term debt 10,020
Payments of long-term debt (41 )
Stock purchases (529 ) (500 )
Proceeds related to employee stock plans 71 112
Cash dividends paid (393 ) (322 )
Other   (13 )   (61 )
Net cash (used for) provided by financing activities (853 ) 9,249
 
Effect of exchange rate changes on cash and cash equivalents (38 ) (10 )
 
Changes in Cash and Cash Equivalents:
Net (decrease) increase in cash and cash equivalents (430 ) 10,215
Cash and cash equivalents at beginning of period   3,000     2,646  
Cash and cash equivalents at end of period $ 2,570   $ 12,861  

Contacts

Walgreens Boots Alliance, Inc.
Media Relations
USA /
Michael Polzin
+1 847 315 2935
or
International / Laura
Vergani
+44 (0)207 980 8585
or
Investor Relations
Gerald
Gradwell and Ashish Kohli
+1 847 315 2922

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