Chain Drug Review, July 8, 2019

14 Chain Drug Review July 8 2019 Business WBA beats Q3 projections as prescription sales rise DEERFIELD Ill Walgreens Boots Alliances WBAs third quarter profit beat analysts expectations as U S pharmacy sales rose 43 in the period ended May 31 Net earnings slipped 236 to 1 billion compared to the year ago quarter while net earnings per share decreased 165 to 113 Stripping out special items the company earned 147 per share beating analysts forecasts of 143 per share Adjusted earnings per share were down 4 on a reported basis and 24 on a constant currency basis For the full fiscal year WBA maintained adjusted EPS guidance of roughly flat at constant currency rates On a reported currency basis the company anticipates approximately 6 cents per share of adverse currency impact Following a difficult second quarter we made progress in the third quarter against the strategic goals we set and are pleased to report an improvement in our U S comparable growth compared with the first half of the year said executive vice chairman and chief executive officer Stefano Pessina We will continue our aggressive response to rapidly shifting trends and have already seen improved U S retail sales and prescription growth and are making good progress in implementing our Transformational Cost Management program Together this gives us the confidence to reiterate the fiscal 2019 guidance we previously provided Company sales rose 07 to 346 billion increasing 29 on a constant currency basis primarily due to growth in the Retail Pharmacy USA and Pharmaceutical Wholesale divisions Operating income was 12 billion a decrease of 247 including the impact of costs related to the Transformational Cost Management program and a lower contribution from the companys equity earnings in AmerisourceBergen Corp due to the impairment of Phar MEDiums long lived assets in the quarter Adjusted operating income was 17 billion a drop of 117 or 104 on a constant currency basis primarily due to lower U S pharmacy margins and retail sales and Boots UK Retail Pharmacy USA saw third quarter sales climb 23 to 265 billion Excluding the impact of store optimization following the acquisition of Rite Aid Corp stores organic sales growth was 29 Pharmacy sales which accounted for 739 of the divisions total sales increased 43 reflecting higher brand inflation and prescription volume and strong growth in central specialty Comparablepharmacy sales increased 6 The division filled 2907 million prescriptions including immunizations adjusted to 30 day equivalents in the quarter an increase of 19 Prescriptions filled in comparable stores increased 47 from the same quarter a year ago Retail prescription market share on a 30 day adjusted basis decreased approximately 50 basis points to 212 as reported by IQVIA This decrease reflects store optimization Front end sales decreased 29 in the third quarter compared with the year ago period including the impact of store optimization following the acquisition of Rite Aid stores Comparable retail sales were down 11 in the quarter primarily due to continued de emphasis of tobacco Gross profit decreased 36 and adjusted gross profit decreased 39 primarily due to reimbursement pressure in pharmacy and lower front end sales Third quarter selling general and administrative expenses SG A as a percentage of sales improved three tenths of a point compared with the yearago quarter Retail Pharmacy International had third quarter sales of 28 billion a decrease of 73 reflecting an adverse currency impact of 57 Sales decreased 16 on a constant currency basis mainly due to a 1 decline in Boots UK In the U K comparable pharmacy sales increased 08 and comparable retail sales decreased 26 with Boots broadly gaining retail market share amid weakness in certain categories Gross profit decreased 85 and on a constant currency basis adjusted gross profit decreased 16 due to lower pharmacy margin and retail sales at Boots UK Pharmaceutical Wholesale had third quarter sales of 59 billion down 17 due to an adverse currency impact of 10 On a constant currency basis sales increased 83 primarily reflecting growth in emerging markets Operating income was 87 million which included a loss of 16 million from the companys equity earnings in Amerisource Bergen due to the impairment of PharMEDiums long lived assets This compared with operating income of 177 million in the year ago quarter which included 52 million from the companys equity earnings in AmerisourceBergen Adjusted operating income increased 26 to 265 million On a constant currency basis adjusted operating income increased 94 Rite Aid reports losses for Q1 remains optimistic CAMP HILL Pa Rite Aid Corp last month reported operating results for the first quarter ended June 1 Net loss from continuing operations was 993 million or 188 per share adjusted net loss from continuing operations was 75 million or 14 cents per share and adjusted earnings before interest taxes depreciation and amortization EBITDA from continuing operations were 1103 million or 21 of revenues While first quarter results did not meet our expectations due to prescription reimbursement rate pressure in the retail pharmacy segment and margin compression in the pharmacy services segment we are pleased with the improvements in our top line growth and operating efficiency in the retail pharmacy segment and Medicare Part D revenue growth in the pharmacy services segment said chief executive officer John Standley Looking forward enhancements made to the McKesson supply agreement generic purchasing improvements revenue growth and the benefits of actions we have taken to reduce costs should drive improved results in both segments for the remainder of the year We expect to meet our full year guidance In addition through our Path to the Future transformation initiative we are identifying significant opportunities to drive further growth and operating efficiency in fiscal 2021 with a focus on reducing our reliance on traditional pharmacy reimbursement rate models Revenues from continuing operations for the quarter were 537 billion compared to 539 billion in the prior years quarter Revenues in the retail pharmacy segment were 386 billion and decreased 08 compared to the prior year period due to a reduction in store count partially offset by an increase in same store sales In the pharmacy services segment revenues were 157 billion an increase of 15 compared to the prior year period which was due to an increase in Medicare Part D revenue Same store sales from retail pharmacy continuing operations for the quarter increased 14 over the same quarter last year the company reported consisting of a 23 increase in pharmacy sales and a 03 decrease in front end sales Front end samestore sales excluding cigarettes and tobacco products increased 03 Pharmacy sales were negatively impacted by approximately 207 basis points as a result of new generic introductions The number of prescriptions filled in same stores adjusted to 30 day equivalents increased 37 over the prioryear period resulting primarily from the companys initiatives to drive medication adherence and script growth Prescription sales from continuing operations accounted for 669 of total drug store sales Net loss from continuing operations was 993 million or 188 per share compared to 417 million or 79 cents per share in the prior year quarter The increase in net loss according to the company was due primarily to higher restructuring related costs a decrease in adjusted EBITDA and higher income tax expense partially offset by a reduction in depreciation and amortization expense and lease termination and impairment charges Adjusted EBITDA from continuing operations was 1103 million or 21 of revenues for the first quarter compared to 138 million or 26 of revenues for the same period last year a decrease of 277 million The retail pharmacy segments adjusted EBITDA from continuing operations decreased 201 million compared to the prior year due primarily to weaker pharmacy gross profit caused by prescription reimbursement rate pressure that the company was not able to fully offset with both generic drug purchasing efficiencies and increases in prescriptions filled in comparable stores The reduction in reimbursement rates was partially caused by a 125 million charge for a change in estimated exposure for a retroactive billing from a state Medicaid agency These negative variances were partially offset by an improvement in adjusted EBITDA selling general and administrative expense of 237 million This improvement was driven by lower salaries and benefit expense relating to the recent corporate restructuring that more than offset the reduction in transition services agreement fee income from Walgreens Boots Alliance and strong labor and expense control at the stores The pharmacy services segments adjusted EBITDA decreased 75 million over the prior year due to margin compression in the companys commercial business and other operating investments to support current year and future growth Same store sales increased 14