Walgreens posts strong 4Q earns, but delays Rite Aid deal

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Posted: Oct 20, 2016 12:37 PM
Walgreens posts strong 4Q earns, but delays Rite Aid deal

Walgreens Boots Alliance earnings topped $1 billion during the fourth quarter, easily surpassing analyst expectations, but the drugstore giant also announced a delay in closing its latest megadeal.

The company said Thursday that it expects to wrap up its $9.4-billion purchase of rival Rite Aid Corp. early next year, rather than by the end of 2016. Walgreens leaders then cautioned analysts against reading too much into the delay.

"As far as we can see today, we are absolutely confident that we can do the deal and create the value," Executive Vice Chairman and CEO Stefano Pessina said during a conference call.

Shares of the nation's largest drugstore chain jumped after markets opened.

Walgreens revealed plans to buy the nation's third-largest drugstore chain nearly a year ago, a deal that could create a chain with about 12,000 U.S. locations, or several thousand more than its closest competitor, CVS Health Corp. The combination also would give Walgreens beefed-up negotiating muscle with drugmakers and other suppliers and enlarge its presence in the Northeast and in Southern California.

The proposal is still being reviewed by federal regulators who have taken a more aggressive stance on major buyouts and, in some cases, shot them down. The Department of Justice, for instance, has sued to block multi-billion dollar acquisitions proposed by two of the country's largest insurers, Anthem Inc. and Aetna Inc.

Walgreens said just last month that it still expected to close the deal this year, but that it might have to sell or divest more than 500 stores. The company had previously said it expected to divest that amount or fewer.

Pessina said Thursday that his company was engaged in a "good collaboration" with the Federal Trade Commission as it reviewed the deal.

"We see just a long administrative process, but we don't see substantial differences from what we were expecting," he said.

Walgreens executives also noted that they factored results from Rite Aid into their Walgreens forecast for 2017, a sign of confidence in the pending acquisition's completion. The company expects to finalize deals to divest its stores by the end of the calendar year.

In the most recent quarter, Walgreens earned $1.03 billion, up from only $26 million last year, when the company took a sizeable hit from a change in the valuation of warrants for AmerisourceBergen stock that it exercised earlier this year.

Adjusted results in the most recent quarter came to $1.07 per share.

Analysts expected 99 cents per share, according to Zacks Investment Research.

Revenue came in nearly flat at $28.64 billion, which was shy of Wall Street forecasts for $29.17 billion.

The Deerfield, Illinois, company also said Thursday that it expects full-year, fiscal 2017 earnings to range between $4.85 and $5.20 per share.

That straddles the average analyst expectation for $5.03 per share, according to FactSet.

The Rite Aid deal is the latest in a string of acquisitions Walgreens Boots Alliance Inc. has announced in the past few years as it has grown to become a global pharmaceutical buying power. Walgreens has more than 13,000 stores around the world and a big presence in the United Kingdom thanks to its acquisition of European health and beauty retailer Alliance Boots. That deal closed about two years ago.

In March, Walgreens said it would spend nearly $1.2 billion to build its stake in AmerisourceBergen, the pharmaceutical wholesaler that supplies its drugstores, mail order and specialty pharmaceutical businesses.

Walgreen shares climbed more than 3 percent, or $2.61, to $79.79 Thursday afternoon, while broader indexes were flat.

The stock had tumbled more than 9 percent since the beginning of the year, as of Wednesday's close.

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Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on WBA at http://www.zacks.com/ap/WBA

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Keywords: Walgreens Boots Alliance, Earnings Report