Company Making Progress on Strategic
Priorities to Deliver Long-Term Growth
Fiscal 2019 Walgreens Boots Alliance highlights,
year-over-year
- Sales increased 4.1 percent to $136.9 billion, up 5.8 percent
on a constant currency basis
- Operating income decreased 20.5 percent to $5.0 billion;
Adjusted operating income decreased 9.6 percent to $6.9 billion,
down 8.6 percent on a constant currency basis
- EPS decreased 14.6 percent to $4.31; Adjusted EPS decreased 0.5
percent to $5.99, up 0.5 percent on a constant currency basis
Fourth quarter highlights, year-over-year
- Sales increased 1.5 percent to $34.0 billion, up 2.6 percent on
a constant currency basis
- Operating income decreased 37.0 percent to $878 million;
Adjusted operating income decreased 11.9 percent to $1.6 billion,
down 11.1 percent on a constant currency basis
- EPS decreased 51.4 percent to $0.75; Adjusted EPS decreased 3.7
percent to $1.43, down 2.9 percent on a constant currency
basis
Transformational Cost Management Program
- Company raised its annual cost savings target from in excess of
$1.5 billion to in excess of $1.8 billion by fiscal 2022
Fiscal 2020 guidance
- Company introduced guidance of roughly flat growth in fiscal
2020 adjusted EPS, on a constant currency basis
Walgreens Boots Alliance, Inc. (Nasdaq: WBA) today announced
financial results for the fiscal year and fourth quarter that ended
August 31, 2019.
Executive Vice Chairman and CEO Stefano Pessina said, “We are
pleased to report fiscal 2019 results in line with our previously
stated guidance despite a challenging operating environment. We are
also making progress on our four strategic priorities, which we
remain confident are positioning us to deliver long-term growth.
While we still face headwinds, I am encouraged by the improvement
in U.S. comparable sales performance in the second half of fiscal
2019 and our progress in managing costs in order to save to invest
to grow. We are introducing guidance for fiscal 2020 adjusted
earnings per share, which we expect will be roughly consistent with
fiscal 2019 at constant currency rates - very much in line with our
expectations.”
Overview of Fiscal Year Results
Fiscal 2019 net earnings attributable to Walgreens Boots
Alliance decreased 20.7 percent to $4.0 billion, while net earnings
per share1 decreased 14.6 percent to $4.31, compared with the prior
year.
Adjusted net earnings attributable to Walgreens Boots Alliance2
in fiscal 2019 decreased 7.6 percent to $5.5 billion, down 6.7
percent on a constant currency basis, compared with the prior year.
Adjusted earnings per share decreased 0.5 percent to $5.99, up 0.5
percent on a constant currency basis, compared with the prior
year.
Sales increased 4.1 percent to $136.9 billion in fiscal 2019
compared with the prior year. On a constant currency basis, sales
increased 5.8 percent.
Operating income in fiscal 2019 was $5.0 billion, a decrease of
20.5 percent from the prior year. Adjusted operating income was
$6.9 billion, a decrease of 9.6 percent, and a decrease of 8.6
percent on a constant currency basis.
Net cash provided by operating activities was $5.6 billion in
fiscal 2019, a decrease of $2.7 billion from fiscal 2018. Free cash
flow was $3.9 billion, a decrease of $3.0 billion from fiscal 2018.
These decreases primarily reflect cash flows relating to the
integration of Rite Aid stores, non-recurring cash tax benefits in
fiscal 2018, and transition tax payments, legal settlements and
cash charges relating to the implementation of the Transformational
Cost Management Program in fiscal 2019.
Overview of Fourth Quarter Results
Fiscal 2019 fourth quarter net earnings attributable to
Walgreens Boots Alliance decreased 55.2 percent to $677 million
compared with the same quarter a year ago, while net earnings per
share1 decreased 51.4 percent to $0.75 compared with the same
quarter a year ago. These results reflect higher charges as the
company accelerated its Transformational Cost Management
Program.
Adjusted net earnings attributable to Walgreens Boots Alliance2
decreased 11.3 percent to $1.3 billion, down 10.6 percent on a
constant currency basis, compared with the same quarter a year ago.
Adjusted earnings per share were $1.43, down 3.7 percent on a
reported currency basis and down 2.9 percent on a constant currency
basis, compared with the same quarter a year ago.
Sales in the fourth quarter were $34.0 billion, an increase of
1.5 percent from the year-ago quarter, and an increase of 2.6
percent on a constant currency basis.
Operating income was $878 million, a decrease of 37.0 percent
from the same quarter a year ago. Adjusted operating income was
$1.6 billion, a decrease of 11.9 percent from the same quarter a
year ago, and a decrease of 11.1 percent on a constant currency
basis.
Net cash provided by operating activities was $2.4 billion in
the fourth quarter, a decrease of $439 million from the same
quarter a year ago. Free cash flow was $1.9 billion, a decrease of
$510 million versus the same quarter last year.
Company Outlook
The company today introduced guidance of roughly flat growth in
fiscal 2020 adjusted earnings per share at constant currency rates,
with a range of plus or minus 3 percent. Excluding the impact of
lower fiscal 2019 bonus payout, this expected performance
represents a year-over-year increase in the mid-single digits.
Progress on Strategic Priorities
During fiscal 2019, the company made progress on its four
strategic priorities: accelerating digitalization; transforming and
restructuring retail offering; creating neighborhood health
destinations; and the Transformational Cost Management Program.
Selected highlights include the following:
- Walgreens Boots Alliance announced its strategic partnership
with Microsoft to deliver innovative platforms that enable
next-generation health networks and care management solutions;
- Walgreens expanded its Find Care platform with new strategic
partners and offerings;
- Walgreens and Kroger Co. expanded their store-in-store pilot
and the innovative Kroger Express concept;
- Walgreens and LabCorp expanded their collaboration, with at
least 600 LabCorp patient service centers at Walgreens stores
planned;
- Through numerous pilots, Walgreens is teaming up with U.S.
national and regional partners in select locations to provide
comprehensive health care services built around a more modern
pharmacy;
- The company made an investment in specialty pharmacy provider
Shields Health Solutions; and
- Boots UK digitalized the Boots Advantage Card, with an app now
integrated across all main customer platforms, and Boots.com sales
increased 14.4 percent in fiscal 2019 and 18.4 percent in the
fourth quarter.
The Transformational Cost Management Program is on track and
today the company announced it is increasing targeted annual
savings from the program from in excess of $1.5 billion to in
excess of $1.8 billion, by fiscal 2022.
Business Divisions
Retail Pharmacy USA:
Retail Pharmacy USA had fourth quarter sales of $26.0 billion,
an increase of 2.1 percent over the year-ago quarter. Excluding the
impact of store optimization following the acquisition of Rite Aid
stores, organic sales growth was 2.9 percent in the quarter. Sales
in comparable stores increased 3.4 percent compared with the same
quarter a year ago.
Pharmacy sales, which accounted for 75.1 percent of the
division’s sales in the quarter, increased 4.2 percent compared
with the year-ago quarter, primarily due to higher brand inflation
and prescription volume, and strong growth in central specialty.
Comparable pharmacy sales increased 5.4 percent. The division
filled 283 million prescriptions (including immunizations) adjusted
to 30-day equivalents in the quarter, an increase of 1.2 percent
over the year-ago quarter. Prescriptions filled in comparable
stores adjusted to 30-day equivalents increased 3.3 percent
compared with the same quarter a year ago.
Retail prescription market share on a 30-day adjusted basis in
the fourth quarter decreased approximately 55 basis points over the
year-ago quarter to 21.0 percent, as reported by IQVIA3. This
decrease is primarily due to store optimization. Retail
prescription market share in fiscal 2019 expanded by 35 basis
points to 21.3 percent, the division's highest ever annual share,
compared with 20.9 percent in fiscal 2018.
Retail sales decreased 3.9 percent in the fourth quarter
compared with the year-ago period, including the impact of store
optimization following the acquisition of Rite Aid stores.
Comparable retail sales decreased 1.2 percent in the quarter,
entirely due to continued de-emphasis of tobacco.
Gross profit decreased 3.9 percent compared with the same
quarter a year ago and includes a decrease of 2.4 percentage points
related to LIFO and a decrease in adjusted gross profit. Adjusted
gross profit decreased 1.1 percent, reflecting a decrease in
retail, partially offset by pharmacy.
Fourth quarter selling, general and administrative expenses
(SG&A) as a percentage of sales improved 0.1 percentage point
compared with the year-ago quarter due to lower legal and
regulatory accruals and settlements, partially offset by costs
incurred under the Transformational Cost Management Program.
Adjusted SG&A as a percentage of sales remained unchanged
compared to the same quarter a year ago. The fourth quarter of 2019
was impacted by a one-time benefit of $69 million in the prior year
associated with a previously disclosed adjustment related to
certain legal and regulatory accruals and settlements. The quarter
also included $53 million of costs related to previously announced
labor, store and digital investments.
Operating income in the fourth quarter decreased 30.3 percent
from the year-ago quarter to $700 million, reflecting lower gross
margin, and includes a 16.1 percent impact from charges incurred
under the Transformational Cost Management Program. Adjusted
operating income in the fourth quarter decreased 12.2 percent from
the year-ago quarter to $1.1 billion. Adjusted operating income
includes an adverse impact of 5.3 percentage points from the prior
year legal and regulatory accruals and settlements adjustment
mentioned above, as well as 4.1 percentage points from the store,
labor and digital investments.
Retail Pharmacy International:
Retail Pharmacy International had fourth quarter sales of $2.7
billion, a decrease of 6.3 percent from the year-ago quarter,
primarily reflecting an adverse currency impact of 4.5 percent.
Sales decreased 1.8 percent on a constant currency basis, mainly
due to a 2.1 percent decline in Boots UK.
Comparable pharmacy sales decreased 1.0 percent on a constant
currency basis, primarily due to lower volume and lower National
Health System (NHS) funding levels in the UK. Comparable retail
sales decreased 2.7 percent on a constant currency basis, with
Boots UK maintaining share in a retail market that remains
challenging.
Gross profit decreased 9.9 percent compared with the same
quarter a year ago, and on a constant currency basis, adjusted
gross profit decreased 5.4 percent, in each case, mainly due to
lower retail sales and margin in Boots UK, and to lower pharmacy
margin.
SG&A as a percentage of sales increased by 4.5 percentage
points. Adjusted SG&A as a percentage of sales, on a constant
currency basis, increased by 0.2 percentage point.
Operating income in the fourth quarter decreased 78.7 percent
from the year-ago quarter to $49 million, while adjusted operating
income decreased 23.8 percent to $194 million, down 20.7 percent on
a constant currency basis.
Pharmaceutical Wholesale:
Pharmaceutical Wholesale had fourth quarter sales of $5.7
billion, an increase of 3.1 percent from the year-ago quarter. On a
constant currency basis, comparable sales increased 7.9 percent,
led by emerging markets and the UK.
Operating income in the fourth quarter was $129 million, which
included a gain of $59 million from the company’s equity earnings
in AmerisourceBergen, compared with operating income of $163
million in the year-ago quarter, which included a gain of $49
million from the company’s equity earnings in AmerisourceBergen.
Adjusted operating income increased 3.7 percent to $229 million, up
6.9 percent on a constant currency basis.
Dividends Declared
During the fourth quarter, the company declared a quarterly
dividend of 45.75 cents per share, an increase of 4 percent. The
dividend was payable September 12, 2019 to stockholders of record
as of August 20, 2019 and raised the annual rate from $1.76 per
share to $1.83 per share. This marked the 44th consecutive year
that Walgreens Boots Alliance and its predecessor company, Walgreen
Co., have raised the dividend.
Conference Call
Walgreens Boots Alliance will hold a one-hour conference call to
discuss the fourth quarter results beginning at 8:30 a.m. Eastern
time today, October 28, 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,
October 28, 2019 through November 4, 2019 by calling +1 855 859
2056 within the U.S. and Canada, or +1 404 537 3406 outside the
U.S. and Canada, using replay code 9494436.
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 organic sales and free cash
flow.
3 Due to revisions made by IQVIA to the methodology used for its
retail prescription database, market share has been restated for
the comparable year-ago period.
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” and “Progress on Strategic
Priorities” above), the expected execution and effect of our
business strategies, our cost-savings and growth initiatives, pilot
programs, strategic partnerships and initiatives, and restructuring
activities and the amounts and timing of their expected impact and
the delivery of annual cost savings 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, our supply, commercial and
framework arrangements and transactions with AmerisourceBergen and
their possible effects, the risks associated with the company’s
equity method investment in AmerisourceBergen, circumstances 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, including tariff negotiations between the United
States and China, and relations, the risks associated with
cybersecurity or privacy breaches related to customer information,
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
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 asset acquisition from 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, the Quarterly Report on Form 10-Q for
the quarter ended February 28, 2019 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 twelve months
ended August 31, 2019.
Notes to Editors:
About Walgreens Boots Alliance
Walgreens Boots Alliance (Nasdaq: WBA) is a global leader in
retail and wholesale pharmacy, touching millions of lives every day
through dispensing and distributing medicines, its convenient
retail locations, digital platforms and health and beauty products.
The company has more than 100 years of trusted health care heritage
and innovation in community pharmacy and pharmaceutical
wholesaling.
Including equity method investments, WBA has a presence in more
than 25 countries, employs more than 440,000 people and has more
than 18,750 stores.
WBA’s purpose is to help people across the world lead healthier
and happier lives. The company is proud of its contributions to
healthy communities, a healthy planet, an inclusive workplace and a
sustainable marketplace. The company’s businesses have been
recognized for their Corporate Social Responsibility. Walgreens was
named to FORTUNE* magazine’s 2019 Companies that Change the World
list and Boots UK was recognized as Responsible Business of the
Year 2019-2020 by Business in the Community.
WBA is included in FORTUNE’s 2019 list of the World’s Most
Admired Companies, ranked first in the food and drugstore category.
This is the 26th consecutive year that WBA or its predecessor
company, Walgreen Co., has been named to the list.
More company information is available at www.walgreensbootsalliance.com.
*© 2019, Fortune Media IP Limited. Used under license.
(WBA-ER)
WALGREENS BOOTS ALLIANCE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
EARNINGS
(UNAUDITED)
(in millions, except per share
amounts)
Three months ended August
31,
Twelve months ended August
31,
2019
2018
2019
2018
Sales
$
33,954
$
33,442
$
136,866
$
131,537
Cost of sales
26,727
25,867
106,790
100,745
Gross profit
7,228
7,575
30,076
30,792
Selling, general and administrative
expenses
6,408
6,228
25,242
24,694
Equity earnings in AmerisourceBergen
59
49
164
191
Operating income
878
1,396
4,998
6,289
Other income
5
424
233
302
Earnings before interest and income tax
provision
883
1,820
5,231
6,591
Interest expense, net
175
159
704
616
Earnings before income tax provision
708
1,661
4,527
5,975
Income tax provision
26
159
588
998
Post tax earnings from other equity method
investments
4
12
23
54
Net earnings
686
1,514
3,962
5,031
Net earnings (loss) attributable to
noncontrolling interests
9
2
(20
)
7
Net earnings attributable to Walgreens
Boots Alliance, Inc.
$
677
$
1,512
$
3,982
$
5,024
Net earnings per common share:
Basic
$
0.75
$
1.55
$
4.32
$
5.07
Diluted
$
0.75
$
1.55
$
4.31
$
5.05
Weighted average common shares
outstanding:
Basic
899.6
974.6
921.5
991.0
Diluted
900.7
977.9
923.5
995.0
WALGREENS BOOTS ALLIANCE, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(UNAUDITED)
(in millions)
August 31, 2019
August 31, 2018
Assets
Current assets:
Cash and cash equivalents
$
1,023
$
785
Accounts receivable, net
7,226
6,573
Inventories
9,333
9,565
Other current assets
1,118
923
Total current assets
18,700
17,846
Non-current assets:
Property, plant and equipment, net
13,478
13,911
Goodwill
16,560
16,914
Intangible assets, net
10,876
11,783
Equity method investments
6,851
6,610
Other non-current assets
1,133
1,060
Total non-current assets
48,899
50,278
Total assets
$
67,598
$
68,124
Liabilities and equity
Current liabilities:
Short-term debt
$
5,738
$
1,966
Trade accounts payable
14,341
13,566
Accrued expenses and other liabilities
5,474
5,862
Income taxes
216
273
Total current liabilities
25,769
21,667
Non-current liabilities:
Long-term debt
11,098
12,431
Deferred income taxes
1,785
1,815
Other non-current liabilities
4,795
5,522
Total non-current liabilities
17,678
19,768
Total equity
24,152
26,689
Total liabilities and equity
$
67,598
$
68,124
WALGREENS BOOTS ALLIANCE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(UNAUDITED)
(in millions)
Twelve months ended August
31,
2019
2018
Cash flows from operating
activities:
Net earnings
$
3,962
$
5,031
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization
2,038
1,770
Gain on previously held equity
interest
—
(337
)
Deferred income taxes
100
(322
)
Stock compensation expense
119
130
Equity earnings from equity method
investments
(187
)
(244
)
Other
302
296
Changes in operating assets and
liabilities:
Accounts receivable, net
(789
)
(391
)
Inventories
141
331
Other current assets
(112
)
(22
)
Trade accounts payable
954
1,352
Accrued expenses and other liabilities
(374
)
287
Income taxes
(406
)
694
Other non-current assets and
liabilities
(154
)
(311
)
Net cash provided by operating
activities
5,594
8,263
Cash flows from investing
activities:
Additions to property, plant and
equipment
(1,702
)
(1,367
)
Proceeds from sale leaseback
transactions
3
—
Proceeds from sale of other assets
117
655
Business, investment and asset
acquisitions, net of cash acquired
(741
)
(4,793
)
Other
16
4
Net cash used for investing activities
(2,307
)
(5,501
)
Cash flows from financing
activities:
Net change in short-term debt with
maturities of 3 months or less
536
586
Proceeds from debt
12,433
5,900
Payments of debt
(10,461
)
(4,890
)
Stock purchases
(4,160
)
(5,228
)
Proceeds related to employee stock
plans
174
174
Cash dividends paid
(1,643
)
(1,739
)
Other
75
(98
)
Net cash used for financing activities
(3,047
)
(5,295
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(9
)
11
Changes in cash, cash equivalents and
restricted cash
Net increase (decrease) in cash, cash
equivalents and restricted cash
232
(2,522
)
Cash, cash equivalents and restricted cash
at beginning of period
975
3,496
Cash, cash equivalents and restricted
cash at end of period
$
1,207
$
975
WALGREENS BOOTS ALLIANCE, INC. AND
SUBSIDIARIES SUPPLEMENTAL INFORMATION (UNAUDITED) REGARDING
NON-GAAP FINANCIAL MEASURES (in millions, except per share
amounts)
The following information provides reconciliations of the
supplemental non-GAAP financial measures, as defined under SEC
rules, presented in this press release to the most directly
comparable financial measures calculated and presented in
accordance with generally accepted accounting principles in the
United States (GAAP). The company has provided the non-GAAP
financial measures in the press release, which are not calculated
or presented in accordance with GAAP, as supplemental information
and in addition to the financial measures that are calculated and
presented in accordance with GAAP.
These supplemental non-GAAP financial measures are presented
because management has evaluated the company’s financial results
both including and excluding the adjusted items or the effects of
foreign currency translation, as applicable, and believe that the
supplemental non-GAAP financial measures presented provide
additional perspective and insights when analyzing the core
operating performance of the company’s business from period to
period and trends in the company’s historical operating results.
These supplemental non-GAAP financial measures should not be
considered superior to, as a substitute for or as an alternative
to, and should be considered in conjunction with, the GAAP
financial measures presented in the press release. The company does
not provide a reconciliation for non-GAAP estimates on a
forward-looking basis (including the information under “Company
Outlook” above) where it is unable to provide a meaningful or
accurate calculation or estimation of reconciling items and the
information is not available without unreasonable effort. This is
due to the inherent difficulty of forecasting the timing or amount
of various items that have not yet occurred, are out of the
company’s control and/or cannot be reasonably predicted, and that
would impact diluted net earnings per share, the most directly
comparable forward-looking GAAP financial measure. For the same
reasons, the company is unable to address the probable significance
of the unavailable information. Forward-looking non-GAAP financial
measures provided without the most directly comparable GAAP
financial measures may vary materially from the corresponding GAAP
financial measures.
Constant currency
The company also presents certain information related to current
period operating results in “constant currency,” which is a
non-GAAP financial measure. These amounts are calculated by
translating current period results at the foreign currency exchange
rates used in the comparable period in the prior year. The company
presents such constant currency financial information because it
has significant operations outside of the United States reporting
in currencies other than the U.S. dollar and this presentation
provides a framework to assess how its business performed excluding
the impact of foreign currency exchange rate fluctuations.
Comparable sales
For our Retail Pharmacy divisions, comparable stores are defined
as those that have been open for at least twelve consecutive months
without closure for seven or more consecutive days and without a
major remodel or being subject to a natural disaster in the past
twelve months. Relocated stores are not included as comparable
stores for the first twelve months after the relocation. Acquired
stores are not included as comparable stores for the first twelve
months after acquisition or conversion, when applicable, whichever
is later. Comparable store sales, comparable pharmacy sales and
comparable retail sales refer to total sales, pharmacy sales and
retail sales, respectively, in such stores. For our Pharmaceutical
Wholesale division, comparable sales are defined as sales excluding
acquisitions and dispositions. The method of calculating comparable
sales varies across the retail industry. As a result, our method of
calculating comparable sales may not be the same as other
retailers’ methods.
Comparable sales are presented on a constant currency basis for
the Retail Pharmacy and Pharmaceutical Wholesale divisions. In the
fourth quarter of fiscal 2019 compared to the year-ago quarter, the
Retail Pharmacy International division’s comparable store sales on
a reported currency basis decreased 6.5 percent, comparable
pharmacy sales on a reported currency basis decreased 5.7 percent
and comparable retail sales on a reported currency basis decreased
7.1 percent. The Pharmaceutical Wholesale division’s comparable
sales excluding acquisitions and dispositions on a reported
currency basis increased 3.1 percent.
Organic sales
Organic sales is a non-GAAP financial measure defined as sales
excluding certain sales relating to non-comparable acquisitions,
divestitures and joint ventures that have been consummated in the
past twelve months. Retail Pharmacy USA’s fourth quarter sales were
$26.0 billion, an increase of 2.1 percent over the year-ago
quarter. Non-comparable acquisitions, divestitures and joint
ventures had a negative impact of 0.8 percentage point, or $139
million.
NET EARNINGS AND DILUTED NET EARNINGS
PER SHARE
Three months ended August
31,
Twelve months ended August
31,
2019
2018
2019
2018
Net earnings attributable to Walgreens
Boots Alliance, Inc. (GAAP)
$
677
$
1,512
$
3,982
$
5,024
Adjustments to operating
income:
Acquisition-related amortization and
impairment1
194
119
567
448
Transformational cost management
212
—
477
—
Acquisition-related costs
75
58
303
231
Adjustments to equity earnings in
AmerisourceBergen
42
39
233
175
Store optimization
97
76
196
100
LIFO provision
60
(82
)
136
84
Certain legal and regulatory accruals and
settlements2
—
164
31
284
Asset recovery
—
—
—
(15
)
Hurricane-related costs
—
—
—
83
Total adjustments to operating income
680
374
1,944
1,390
Adjustments to other income
(expense):
Net investment hedging loss (gain)
8
15
18
(21
)
Gain on sale of equity method
investment
—
(322
)
—
(322
)
Impairment of equity method investment
—
—
—
178
Termination of option granted to Rite
Aid
—
—
(173
)
—
Total adjustments to other income
(expense)
8
(307
)
(155
)
(165
)
Adjustments to interest expense,
net:
Prefunded acquisition financing costs
—
—
—
29
Total adjustments to interest expense,
net
—
—
—
29
Adjustments to income tax
provision:
Equity method non-cash tax
9
6
18
25
U.S. tax law changes3
(5
)
(169
)
(8
)
(125
)
Tax impact of adjustments4
(103
)
31
(291
)
(193
)
Total adjustments to income tax
provision
(99
)
(132
)
(281
)
(293
)
Adjustments to post tax equity earnings
from other equity method investments:
Adjustments to equity earnings in other
equity method investments5
17
—
40
—
Total adjustments to post tax equity
earnings from other equity method investments
17
—
40
—
Adjusted net earnings attributable to
Walgreens Boots Alliance, Inc. (Non-GAAP measure)
$
1,284
$
1,447
$
5,529
$
5,985
Diluted net earnings per common share
(GAAP)
$
0.75
$
1.55
$
4.31
$
5.05
Adjustments to operating income
0.75
0.38
2.10
1.40
Adjustments to other income (expense)
0.01
(0.31
)
(0.17
)
(0.17
)
Adjustments to interest expense, net
—
—
—
0.03
Adjustments to income tax provision
(0.11
)
(0.14
)
(0.30
)
(0.29
)
Adjustments to equity methods in other
equity method investments
0.02
—
0.04
—
Adjusted diluted net earnings per
common share (Non-GAAP measure)
$
1.43
$
1.48
$
5.99
$
6.02
Weighted average common shares
outstanding, diluted (in millions)
900.7
977.9
923.5
995.0
1
Includes impairment of $73 million for
indefinite-lived pharmacy licenses intangible asset recorded during
the three months ended August 31, 2019, in the Boots reporting unit
within the Retail Pharmacy International segment.
2
Beginning in the quarter ended August 31,
2018, management reviewed and refined its practice to include all
charges related to the matters included in certain legal and
regulatory accruals and settlements. In order to present non-GAAP
measures on a consistent basis for fiscal year 2018, the company
included adjustments in the quarter ended August 31, 2018 of $14
million, $50 million and $5 million which were previously accrued
in the company’s financial statements for the quarters ended
November 30, 2017, February 28, 2018, and May 31, 2018,
respectively. These additional adjustments impact the comparability
of such results to the results reported in prior and future
quarters.
3
Discrete tax-only items.
4
Represents the adjustment to the GAAP
basis tax provision commensurate with non-GAAP adjustments and the
adjusted tax rate true-up.
5
Beginning in the quarter ended May 31,
2019, management reviewed and refined its practice to reflect the
proportionate share of certain equity method investees’ non-cash
items or unusual or infrequent items consistent with the company’s
non-GAAP measures in order to provide investors with a comparable
view of performance across periods. These adjustments include
acquisition-related amortization and acquisition-related costs and
were immaterial for the prior periods presented. Although the
company may have shareholder rights and board representation
commensurate with its ownership interests in these equity method
investees, adjustments relating to equity method investments are
not intended to imply that the company has direct control over
their operations and resulting revenue and expenses. Moreover,
these non-GAAP financial measures have limitations in that they do
not reflect all revenue and expenses of these equity method
investees.
Reconciliation of Non-GAAP Measures by
Division
Three months ended August 31,
2019
Retail Pharmacy USA
Retail Pharmacy
International
Pharmaceutical
Wholesale1
Eliminations
Walgreens Boots Alliance,
Inc.
Sales
26,040
2,703
5,742
(532
)
33,954
Gross profit (GAAP)
5,631
1,104
492
—
7,228
Transformational cost management
—
3
—
—
3
Acquisition-related costs
13
—
—
—
13
Store optimization
5
—
—
—
5
LIFO provision
60
—
—
—
60
Adjusted gross profit (Non-GAAP
measure)
5,710
1,107
492
—
7,309
Selling, general and administrative
expenses (GAAP)
$
4,932
$
1,055
$
421
$
—
$
6,408
Acquisition-related amortization and
impairment2
(78
)
(97
)
(19
)
—
(194
)
Transformational cost management
(130
)
(42
)
(36
)
—
(208
)
Acquisition-related costs
(58
)
(3
)
(1
)
—
(62
)
Store optimization
(91
)
—
—
—
(91
)
Adjusted selling, general and
administrative expenses (Non-GAAP measure)
$
4,574
$
913
$
364
$
—
$
5,852
Operating income (GAAP)
$
700
$
49
$
129
$
—
$
878
Acquisition-related amortization and
impairment2
78
97
19
—
194
Transformational cost management
130
46
36
—
212
Acquisition-related costs
72
3
1
—
75
Adjustments to equity earnings in
AmerisourceBergen
—
—
42
—
42
Store optimization
97
—
—
—
97
LIFO provision
60
—
—
—
60
Adjusted operating income (Non-GAAP
measure)
$
1,135
$
194
$
229
$
—
$
1,558
Gross margin (GAAP)
21.6
%
40.8
%
8.6
%
21.3
%
Adjusted gross margin (Non-GAAP
measure)
21.9
%
41.0
%
8.6
%
21.5
%
Selling, general and administrative
expenses percent to sales (GAAP)
18.9
%
39.0
%
7.3
%
18.9
%
Adjusted selling, general and
administrative expenses percent to sales (Non-GAAP measure)
17.6
%
33.8
%
6.3
%
17.2
%
Operating margin (GAAP)3
2.7
%
1.8
%
1.2
%
2.4
%
Adjusted operating margin (Non-GAAP
measure)3
4.4
%
7.2
%
2.2
%
4.3
%
1
Operating income for Pharmaceutical
Wholesale includes equity earnings in AmerisourceBergen. As a
result of the two month reporting lag, operating income for the
three and twelve month periods ended August 31, 2019 includes
AmerisourceBergen equity earnings for the periods of April 1, 2019
through June 30, 2019 and July 1, 2018 through June 30, 2019,
respectively. Operating income for the three and twelve month
periods ended August 31, 2018 includes AmerisourceBergen equity
earnings for the period of April 1, 2018 through June 30, 2018 and
July 1, 2017 through June 30, 2018, respectively.
2
See note 1 on page 13.
3
Operating margins and adjusted operating
margins have been calculated excluding equity earnings in
AmerisourceBergen.
Reconciliation of Non-GAAP Measures by
Division
Three months ended August 31,
2018
Retail Pharmacy USA
Retail Pharmacy
International
Pharmaceutical
Wholesale1
Eliminations
Walgreens Boots Alliance,
Inc.
Sales
$
25,508
$
2,886
$
5,568
$
(520
)
$
33,442
Gross profit (GAAP)
$
5,860
$
1,225
$
491
$
(1
)
$
7,575
Acquisition-related amortization
(3
)
—
—
—
(3
)
LIFO provision
(82
)
—
—
—
(82
)
Adjusted gross profit (Non-GAAP
measure)
$
5,775
$
1,225
$
491
$
(1
)
$
7,490
Selling, general and administrative
expenses (GAAP)2
$
4,856
$
995
$
377
$—
$
6,228
Acquisition-related amortization
(77
)
(25
)
(20
)
—
(122
)
Acquisition-related costs
(58
)
—
—
—
(58
)
Store optimization
(76
)
—
—
—
(76
)
Certain legal and regulatory accruals and
settlements3
(164
)
—
—
—
(164
)
Adjusted selling, general and
administrative expenses (Non-GAAP measure)2
$
4,481
$
970
$
357
$
—
$
5,808
Operating income (GAAP)2
$
1,004
$
230
$
163
$
(1
)
$
1,396
Acquisition-related amortization
74
25
20
—
119
Acquisition-related costs
58
—
—
—
58
Adjustments to equity earnings in
AmerisourceBergen
—
—
39
—
39
Store optimization
76
—
—
—
76
LIFO provision
(82
)
—
—
—
(82
)
Certain legal and regulatory accruals and
settlements3
164
—
—
—
164
Adjusted operating income (Non-GAAP
measure)2
$
1,294
$
255
$
222
$
(1
)
$
1,770
Gross margin (GAAP)
23.0
%
42.4
%
8.8
%
22.7
%
Adjusted gross margin (Non-GAAP
measure)
22.6
%
42.4
%
8.8
%
22.4
%
Selling, general and administrative
expenses percent to sales (GAAP)2
19.0
%
34.5
%
6.8
%
18.6
%
Adjusted selling, general and
administrative expenses percent to sales (Non-GAAP measure)2
17.6
%
33.6
%
6.4
%
17.4
%
Operating margin (GAAP)2,4
3.9
%
8.0
%
2.0
%
4.0
%
Adjusted operating margin (Non-GAAP
measure)2,4
5.1
%
8.8
%
2.4
%
5.0
%
1
Operating income for Pharmaceutical
Wholesale includes equity earnings in AmerisourceBergen. As a
result of the two month reporting lag, operating income for the
three and twelve month periods ended August 31, 2019 includes
AmerisourceBergen equity earnings for the periods of April 1, 2019
through June 30, 2019 and July 1, 2018 through June 30, 2019,
respectively. Operating income for the three and twelve month
periods ended August 31, 2018 includes AmerisourceBergen equity
earnings for the period of April 1, 2018 through June 30, 2018 and
July 1, 2017 through June 30, 2018, respectively.
2
The company adopted new accounting
guidance in Accounting Standards Update 2017-07 as of September 1,
2018 (fiscal 2019) on a retrospective basis for the Consolidated
Statements of Earnings presentation. This change resulted in
reclassification of all the other net cost components (excluding
service cost component) of net pension cost and net postretirement
benefit cost from selling, general and administrative expenses to
other income (expense) with no impact on the company’s net
earnings.
3
See note 2 on page 13.
4
Operating margins and adjusted operating
margins have been calculated excluding equity earnings in
AmerisourceBergen.
Reconciliation of Non-GAAP Measures by
Division
Twelve months ended August 31,
2019
Retail Pharmacy USA
Retail Pharmacy
International
Pharmaceutical
Wholesale1
Eliminations
Walgreens Boots Alliance,
Inc.
Sales
$
104,532
$
11,462
$
23,053
$
(2,180
)
$
136,866
Gross profit (GAAP)
$
23,511
$
4,522
$
2,041
$
2
$
30,076
Transformational cost management
—
45
—
—
45
Acquisition-related costs
63
—
—
—
63
Store optimization
8
—
—
—
8
LIFO provision
136
—
—
—
136
Adjusted gross profit (Non-GAAP
measure)
$
23,718
$
4,567
$
2,041
$
2
$
30,328
Selling, general and administrative
expenses (GAAP)
$
19,424
$
4,084
$
1,734
$
—
$
25,242
Acquisition-related amortization and
impairment2
(315
)
(173
)
(78
)
—
(567
)
Transformational cost management
(189
)
(89
)
(155
)
—
(432
)
Acquisition-related costs
(237
)
(3
)
(1
)
—
(241
)
Store optimization
(189
)
—
—
—
(189
)
Certain legal and regulatory accruals and
settlements3
(31
)
—
—
—
(31
)
Adjusted selling, general and
administrative expenses (Non-GAAP measure)
$
18,464
$
3,819
$
1,499
$
—
$
23,783
Operating income (GAAP)
$
4,088
$
438
$
471
$
1
$
4,998
Acquisition-related amortization and
impairment2
315
173
78
—
567
Transformational cost management
189
133
155
—
477
Acquisition-related costs
300
3
1
—
303
Adjustments to equity earnings in
AmerisourceBergen
—
—
233
—
233
Store optimization
196
—
—
—
196
LIFO provision
136
—
—
—
136
Certain legal and regulatory accruals and
settlements3
31
—
—
—
31
Adjusted operating income (Non-GAAP
measure)
$
5,255
$
747
$
939
$
1
$
6,942
Gross margin (GAAP)
22.5
%
39.5
%
8.9
%
22.0
%
Adjusted gross margin (Non-GAAP
measure)
22.7
%
39.8
%
8.9
%
22.2
%
Selling, general and administrative
expenses percent to sales (GAAP)
18.6
%
35.6
%
7.5
%
18.4
%
Adjusted selling, general and
administrative expenses percent to sales (Non-GAAP measure)
17.7
%
33.3
%
6.5
%
17.4
%
Operating margin (GAAP)4
3.9
%
3.8
%
1.3
%
3.5
%
Adjusted operating margin (Non-GAAP
measure)4
5.0
%
6.5
%
2.4
%
4.8
%
1
Operating income for Pharmaceutical
Wholesale includes equity earnings in AmerisourceBergen. As a
result of the two month reporting lag, operating income for the
three and twelve month periods ended August 31, 2019 includes
AmerisourceBergen equity earnings for the periods of April 1, 2019
through June 30, 2019 and July 1, 2018 through June 30, 2019,
respectively. Operating income for the three and twelve month
periods ended August 31, 2018 includes AmerisourceBergen equity
earnings for the period of April 1, 2018 through June 30, 2018 and
July 1, 2017 through June 30, 2018, respectively.
2
See note 1 on page 13.
3
See note 2 on page 13.
4
Operating margins and adjusted operating
margins have been calculated excluding equity earnings in
AmerisourceBergen.
Reconciliation of Non-GAAP Measures by
Division
Twelve months ended August 31,
2018
Retail Pharmacy USA
Retail Pharmacy
International
Pharmaceutical
Wholesale1
Eliminations
Walgreens Boots Alliance,
Inc.
Sales
$
98,392
$
12,281
$
23,006
$
(2,142
)
$
131,537
Gross profit (GAAP)
$
23,758
$
4,958
$
2,081
$
(5
)
$
30,792
Acquisition-related amortization
11
—
—
—
11
LIFO provision
84
—
—
—
84
Hurricane-related costs
43
—
—
—
43
Adjusted gross profit (Non-GAAP
measure)
$
23,896
$
4,958
$
2,081
$
(5
)
$
30,930
Selling, general and administrative
expenses (GAAP)2
$
18,971
$
4,134
$
1,594
$
(5
)
$
24,694
Acquisition-related amortization
(249
)
(105
)
(83
)
—
(437
)
Acquisition-related costs
(231
)
—
—
—
(231
)
Store optimization
(100
)
—
—
—
(100
)
Certain legal and regulatory accruals and
settlements3
(284
)
—
—
—
(284
)
Asset recovery
15
—
—
—
15
Hurricane-related costs
(40
)
—
—
—
(40
)
Adjusted selling, general and
administrative expenses (Non-GAAP measure)2
$
18,082
$
4,029
$
1,511
$
(5
)
$
23,617
Operating income (GAAP)2
$
4,787
$
824
$
678
$
—
$
6,289
Acquisition-related amortization
260
105
83
—
448
Acquisition-related costs
231
—
—
—
231
Adjustments to equity earnings in
AmerisourceBergen
—
—
175
—
175
Store optimization
100
—
—
—
100
LIFO provision
84
—
—
—
84
Certain legal and regulatory accruals and
settlements3
284
—
—
—
284
Asset recovery
(15
)
—
—
—
(15
)
Hurricane-related costs
83
—
—
—
83
Adjusted operating income (Non-GAAP
measure)2
$
5,814
$
929
$
936
$
—
$
7,679
Gross margin (GAAP)
24.1
%
40.4
%
9.0
%
23.4
%
Adjusted gross margin (Non-GAAP
measure)
24.3
%
40.4
%
9.0
%
23.5
%
Selling, general and administrative
expenses percent to sales (GAAP)2
19.3
%
33.7
%
6.9
%
18.8
%
Adjusted selling, general and
administrative expenses percent to sales (Non-GAAP measure)2
18.4
%
32.8
%
6.6
%
18.0
%
Operating margin (GAAP)2,4
4.9
%
6.7
%
2.1
%
4.6
%
Adjusted operating margin (Non-GAAP
measure)2,4
5.9
%
7.6
%
2.5
%
5.6
%
1
Operating income for Pharmaceutical
Wholesale includes equity earnings in AmerisourceBergen. As a
result of the two month reporting lag, operating income for the
three and twelve month periods ended August 31, 2019 includes
AmerisourceBergen equity earnings for the periods of April 1, 2019
through June 30, 2019 and July 1, 2018 through June 30, 2019,
respectively. Operating income for the three and twelve month
periods ended August 31, 2018 includes AmerisourceBergen equity
earnings for the period of April 1, 2018 through June 30, 2018 and
July 1, 2017 through June 30, 2018, respectively.
2
The company adopted new accounting
guidance in Accounting Standards Update 2017-07 as of September 1,
2018 (fiscal 2019) on a retrospective basis for the Consolidated
Statements of Earnings presentation. This change resulted in
reclassification of all the other net cost components (excluding
service cost component) of net pension cost and net postretirement
benefit cost from selling, general and administrative expenses to
other income (expense) with no impact on the company’s net
earnings.
3
See note 2 on page 13.
4
Operating margins and adjusted operating
margins have been calculated excluding equity earnings in
AmerisourceBergen.
EQUITY EARNINGS IN
AMERISOURCEBERGEN
Three months ended August
31,
Twelve months ended August
31,
2019
2018
2019
2018
Equity earnings in AmerisourceBergen
(GAAP)
$
59
$
49
$
164
$
191
Gain on sale of equity investment
—
—
(3
)
—
U.S. tax law changes
—
—
(17
)
(152
)
Acquisition-related amortization
30
32
125
119
LIFO provision
(2
)
(3
)
—
(15
)
Anti-Trust
—
—
(28
)
—
Litigation settlements and other
12
14
9
199
Early debt extinguishment
—
(7
)
—
(2
)
Loss on previously held equity
interest
—
—
—
11
Asset Impairment
(1
)
—
129
8
PharMEDium remediation costs
4
3
16
7
Adjusted equity earnings in
AmerisourceBergen (Non-GAAP measure)
$
101
$
88
$
397
$
366
ADJUSTED EFFECTIVE TAX
RATE
Three months ended August 31,
2019
Three months ended August 31,
2018
Earnings before income tax
provision
Income tax
Effective tax rate
Earnings before income tax
provision
Income tax
Effective tax rate
Effective tax rate (GAAP)
$
708
$
26
3.7
%
$
1,661
$
159
9.6
%
Impact of non-GAAP adjustments
688
111
67
(20
)
U.S. tax law changes
—
5
—
169
Adjusted tax rate true-up
—
(8
)
—
(6
)
Equity method non-cash tax
—
(9
)
(11
)
Subtotal
$
1,396
$
125
$
1,728
$
291
Exclude adjusted equity earnings in
AmerisourceBergen
(101
)
—
(88
)
—
Adjusted effective tax rate excluding
adjusted equity earnings in AmerisourceBergen (Non-GAAP
measure)
$
1,295
$
125
9.6
%
$
1,640
$
291
17.7
%
Twelve months ended August 31,
2019
Twelve months ended August 31,
2018
Earnings before income tax
provision
Income tax
Effective tax rate
Earnings before income tax
provision
Income tax
Effective tax rate
Effective tax rate (GAAP)
$
4,527
$
588
13.0
%
$
5,975
$
998
16.7
%
Impact of non-GAAP adjustments
1,789
291
1,254
193
U.S. tax law changes
—
8
—
125
Equity method non-cash tax
—
(18
)
—
(25
)
Subtotal
$
6,316
$
870
$
7,229
$
1,291
Exclude adjusted equity earnings in
AmerisourceBergen
(397
)
—
(366
)
—
Adjusted effective tax rate excluding
adjusted equity earnings in AmerisourceBergen (Non-GAAP
measure)
$
5,919
$
870
14.7
%
$
6,863
$
1,291
18.8
%
FREE CASH FLOW
Three months ended August
31,
Twelve months ended August
31,
2019
2018
2019
2018
Net cash provided by operating
activities (GAAP)1
$
2,378
$
2,817
$
5,594
$
8,263
Less: Additions to property, plant and
equipment
(456
)
(384
)
(1,702
)
(1,367
)
Free cash flow (Non-GAAP
measure)2
$
1,923
$
2,433
$
3,892
$
6,896
1
The company adopted new accounting
guidance in Accounting Standards Update 2016-18 as of September 1,
2018 (fiscal 2019) on a retrospective basis for the Consolidated
Statements of Cash Flows presentation. This change resulted in
restricted cash being included with cash and cash equivalents when
reconciling the beginning-of-period and end-of-period total amounts
shown on the Consolidated Statement of Cash Flows.
2
Free cash flow is defined as net cash
provided by operating activities in a period less additions to
property, plant and equipment (capital expenditures) made in that
period. This measure does not represent residual cash flows
available for discretionary expenditures as the measure does not
deduct the payments required for debt service and other contractual
obligations or payments for future business acquisitions.
Therefore, we believe it is important to view free cash flow as a
measure that provides supplemental information to our entire
statements of cash flows.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191028005267/en/
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
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