Walgreens Profit Squeezed by Weak Prescription Volume -- WSJ
January 09 2020 - 3:02AM
Dow Jones News
By Sharon Terlep and Allison Prang
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 9, 2020).
Walgreens Boots Alliance Inc.'s quarterly earnings dropped 25%
amid increased competition from online and discount retailers and
shrinking profits in prescription drugs.
The pharmacy chain's fiscal first-quarter profit fell to $845
million, even as overall revenue rose and the company worked to cut
costs. Retail pharmacy sales increased 1.6% in the U.S., well below
expectations, and executives said prescription volumes were weaker
than planned.
Chief Executive Stefano Pessina said a turnaround will take time
and stuck by financial targets for the full fiscal year. "It has
been a slow start to the financial year with a competitive U.S.
pharmacy environment and soft trading conditions in the U.K.," Mr.
Pessina said on a conference call Wednesday.
The company's shares fell nearly 6% to close at $55.83. Last
year, shares were the worst performing member of the Dow Jones
Industrial Average, falling 13.7%. The index gained 22% in
2019.
Walgreens, which also owns the Boots drugstore chain in Europe,
is getting squeezed in U.S. negotiations with pharmacy-benefit
managers, which serve insurers and other clients by choosing which
medicines to cover and pushing for lower prices from drugmakers and
sellers.
Prices that pharmacies pay for generic drugs have been falling,
but insurers' reimbursement rates are declining more. At the same
time, competition from Amazon.com Inc. and other retailers has hurt
the company's retail business.
For the first time, Walgreens executives seemed to acknowledge
fallout from the acquisition of health insurer Aetna by rival CVS
Health Corp. CVS, which already had its own prescription-benefit
manager, now owns one of the nation's largest insurers at a time
when those relationships are becoming ever more critical.
"We're doing less well with them," said co-Chief Operating
Officer Alex Gourlay, referring to Aetna. "For the obvious
reasons."
Walgreens has said it doesn't need to own an insurer or PBM to
thrive, and on Wednesday the company said it had a number of
successful partnerships with other companies that will bolster its
profit in coming years.
The company didn't address reports from late last year that it
was in talks with private-equity firm KKR & Co. over a
potential buyout. Those talks stalled and no deal appears imminent,
people familiar with the matter have said.
Total sales rose less than 2% in the quarter ended Nov. 30,
hitting $34.3 billion. Adjusted earnings of $1.37 a share missed
the consensus estimate from analysts polled by FactSet.
Walgreens said comparable retail sales in the U.S. -- or those
at stores that have been open for at least a year at minimum --
declined 0.5% in the first quarter because of less of an emphasis
on tobacco. Walgreens raised the minimum age required for customers
to buy tobacco products in its stores to 21 as of Sept. 1.
Executives said they were on track with a restructuring effort
that they have predicted will generate annual savings of $1.8
billion by 2022.
Walgreens said in October it was shutting down the in-store
health clinics in the U.S. that it runs. The company, however, is
keeping the ones run by local health systems.
Write to Sharon Terlep at sharon.terlep@wsj.com and Allison
Prang at allison.prang@wsj.com
(END) Dow Jones Newswires
January 09, 2020 02:47 ET (07:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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