Walgreens Profit Squeezed by Generic Drugs -- 2nd update
June 27 2019 - 12:31PM
Dow Jones News
By Sharon Terlep and Aisha Al-Muslim
Walgreens Boots Alliance Inc. needs a new business model to
offset thinning profits from the sale of generic drugs, which
continue to drag down results, the drugstore chain's chief
executive said Thursday.
The comments from Stefano Pessina came after the Deerfield,
Ill.-based company said profit fell in the latest quarter from a
year earlier even as sales increased.
While the results are an improvement from the previous quarter
and better than analysts expected, Walgreens remains squeezed by
pharmacy-benefit managers, which wrest lower prices from both
makers and sellers of drugs on behalf of insurers and other
clients.
Walgreens and rival CVS Health Corp. have been remodeling
hundreds of stores into medical-service centers targeted at
customers with chronic conditions such as diabetes, heart disease
and hypertension.
Their plan comes as both chains are under pressure to find new
ways to counter slowing revenue from prescription drugs, especially
generics, which drive the bulk of their sales.
Mr. Pessina said the company must become less reliant on drug
reimbursements and find new revenue streams, which requires
overhauling its business.
"We have a lot of work ahead to get the business growing again,"
Mr. Pessina said on a call with analysts, adding that the company
must proceed cautiously in launching new ventures. "We are far from
complacent about the pressure we face."
Walgreens improved U.S. retail sales, U.S. same-store sales, and
prescription growth in the most recent quarter.
For the third quarter ended May 31, profit fell 23.6%, partly
driven by its gross profit falling. Gross profit decreased in the
quarter about 4.2% as the company faced reimbursement pressure in
pharmacy and lower retail sales in the U.S., as well as a lower
pharmacy margin and retail sales at Boots UK, the company's
retailer and pharmacy chain in the U.K.
Net income slipped to $1.03 billion, or $1.13 a share, down from
$1.34 billion, or $1.35 a share, a year earlier. Adjusted earnings
came in at $1.47 a share.
Walgreens said sales rose 0.7% to $34.6 billion, primarily due
to growth in its U.S. retail pharmacy and pharmaceutical wholesale
divisions.
In the quarter, U.S. retail pharmacy sales rose 2.3% to $26.5
billion, reflecting higher brand inflation and prescription
volume.
Same-store pharmacy sales increased 6%, while comparable retail
sales were down 1.1% primarily due to the continued de-emphasis of
tobacco.
Shares rose 4.5% to $54.75 in midday trading Thursday. Shares
are down 17% in the past year.
For fiscal 2019, Walgreens maintained its expectations of
adjusted earnings per share at constant currency rates to be
roughly flat.
Write to Sharon Terlep at sharon.terlep@wsj.com and Aisha
Al-Muslim at aisha.al-muslim@wsj.com
(END) Dow Jones Newswires
June 27, 2019 12:16 ET (16:16 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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