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Walgreen Co. Reports Fiscal 2013 Third Quarter Results

  Walgreen Co. Reports Fiscal 2013 Third Quarter Results

  *Adjusted third quarter earnings per diluted share increase 18.1 percent to
    record 85 cents, compared with adjusted earnings per diluted share of 72
    cents in year-ago quarter; GAAP earnings per diluted share increase 4.8
    percent to 65 cents compared with 62 cents in last year’s third quarter
  *Adjusted third quarter earnings increase 29.3 percent to record $812
    million, compared with adjusted earnings of $628 million in year-ago
    quarter; GAAP earnings increase 16.2 percent to $624 million compared with
    $537 million in last year’s third quarter
  *Company records cash flow from operations in third quarter of $1.4 billion
  *Joint synergy program with Alliance Boots on track to deliver combined
    first-year synergies of $125-$150 million

Business Wire

DEERFIELD, Ill. -- June 25, 2013

Walgreen Co. (NYSE:WAG) (NASDAQ:WAG) today announced earnings and sales
results for the third quarter and first nine months of fiscal year 2013 ended
May 31.

Net earnings determined in accordance with generally accepted accounting
principles (GAAP) for the fiscal 2013 third quarter were $624 million, a 16.2
percent increase from $537 million in the same quarter a year ago. Net
earnings per diluted share for the quarter increased 4.8 percent to 65 cents,
compared with 62 cents per diluted share in the year-ago quarter.

Adjusted fiscal 2013 third quarter net earnings were $812 million, a 29.3
percent increase from $628 million in the same quarter a year ago. Adjusted
net earnings per diluted share for the quarter increased 18.1 percent to 85
cents, compared with 72 cents per diluted share in the year-ago quarter. This
year’s adjusted third quarter results exclude the negative impacts of 8 cents
per diluted share from the quarter’s LIFO provision, 5 cents per diluted share
in acquisition related amortization, 5 cents per diluted share related to a
legal settlement with the U.S. Drug Enforcement Administration (DEA), 5 cents
per diluted share in Alliance Boots related tax and 2 cents per diluted share
in other acquisition related costs. Also excluded is the positive impact of 5
cents per diluted share in fair value adjustments and amortization related to
the company’s warrants to purchase AmerisourceBergen’s common stock.

“This quarter we continued to see a strengthening in our pharmacy performance
as we maintained strong margins and increased our retail pharmacy market share
from 18.4 percent to 19.2 percent year over year,” said Walgreens President
and CEO Greg Wasson. “This, in combination with our focus on cost control, and
the contribution from Alliance Boots and related synergies, resulted in
adjusted earnings per diluted share growth of 18.1 percent in the quarter. We
also produced another strong quarter of operating cash flow of $1.4 billion.
That said, our front-end sales are still not up to our expectations, and while
the economy remains challenging, increasing customer traffic and front-end
sales are our near-term priorities with a focus on pricing and promotion and
the leveraging of our Balance® Rewards program, which now has 75 million
members.”

Net earnings for the first nine months of fiscal 2013 ended May 31 determined
in accordance with GAAP were $1.79 billion, an increase of 1.1 percent
compared with $1.77 billion in the first nine months of fiscal 2012. Net
earnings per diluted share for the first nine months of fiscal 2013 decreased
7.4 percent to $1.88, compared with $2.03 per diluted share in the first nine
months of fiscal 2012.

Adjusted net earnings for the first nine months of fiscal 2013 ended May 31
were $2.28 billion, an increase of 13.2 percent compared with adjusted net
earnings of $2.01 billion in the first nine months of fiscal 2012. Adjusted
net earnings per diluted share for the first nine months of fiscal 2013
increased 3.5 percent to $2.39, compared with $2.31 per diluted share in the
first nine months of fiscal 2012. This year’s adjusted nine-month results
exclude the negative impacts of 19 cents per diluted share in acquisition
related amortization, 16 cents per diluted share from the LIFO provision, 9
cents per diluted share in Alliance Boots related tax, 5 cents per diluted
share in other acquisition related costs, 5 cents per diluted share related to
a legal settlement with the DEA and 3 cents per diluted share in costs related
to Hurricane Sandy. Also excluded is the positive impact of 5 cents per
diluted share in fair value adjustments and amortization related to the
company’s warrants to purchase AmerisourceBergen’s common stock and 1 cent per
diluted share in additional proceeds from the 2011 sale of the company’s
pharmacy benefit manager business.

Walgreens joint synergy program with its strategic partner, Alliance Boots, is
on track to deliver combined first-year synergies of $125-$150 million,
compared with the company’s previous target of $100-$150 million. Alliance
Boots contributed 10 cents per diluted share to Walgreens third quarter
adjusted results, including a negative impact of 2 cents per diluted share due
to reconciliation of International Financial Reporting Standards (IFRS) with
GAAP. Alliance Boots is anticipated to contribute 8 cents per diluted share to
fourth quarter adjusted results, including a negative impact of 1 cent per
diluted share from weakening in the British pound between February and May.

FINANCIAL HIGHLIGHTS

Sales

Third quarter sales increased 3.2 percent compared with the prior-year quarter
to $18.3 billion, while sales for the first nine months decreased 0.5 percent
to $54.3 billion. Front-end comparable store sales (those open at least a
year) increased 0.4 percent in the third quarter, customer traffic in
comparable stores decreased 3.9 percent and basket size increased 4.4 percent,
while total sales in comparable stores increased 1.4 percent.

Prescription sales, which accounted for 63.1 percent of sales in the quarter,
increased 3.4 percent, while prescription sales in comparable stores increased
2.0 percent. The company filled 209 million prescriptions in the quarter, an
increase of 8.7 percent over last year’s third quarter. Prescriptions filled
in comparable stores increased 7.1 percent in the quarter.

Gross Profit and SG&A

Total gross profit dollars increased $208 million, or 4.1 percent, compared
with the year-ago third quarter, with gross profit margins increasing 30 basis
points versus the year-ago quarter to 28.5 as a percentage of sales. The
growth in margins was driven primarily by an increase in generic prescription
drugs dispensed and positive contribution from the front end. The LIFO
provision was $120 million in the third quarter, compared with $60 million in
the year-ago quarter, primarily driven by prescription drug inflation.

Selling, general and administrative expense dollars increased $221 million, or
5.3 percent, compared with the year-ago quarter, including 0.2 percentage
point of SG&A expenses for acquisition-related costs and 0.6 percentage point
for a legal settlement with the DEA.

The company opened or acquired 39 new drugstores in the third quarter compared
with 52 in the year-ago quarter.

Interest expense increased to $50 million in this year’s third quarter
compared with $17 million in the year-ago quarter. The increase in interest
expense was primarily attributable to the $4.0 billion note issuance
associated with the Alliance Boots transaction and also includes a $7 million
negative impact from a non-cash fair market value adjustment to the company’s
outstanding interest rate swaps.

Walgreens also delivered operating and free cash flow of $1.4 billion and $1.1
billion, respectively, in the third quarter.

Other third quarter highlights

  *In March, Walgreens and Alliance Boots announced a strategic, long-term
    relationship with AmerisourceBergen that expands Walgreens existing
    relationship into a 10-year agreement with AmerisourceBergen for
    pharmaceutical distribution. Under the agreement, AmerisourceBergen also
    will collaborate with Walgreens and Alliance Boots on global supply chain
    opportunities, and Walgreens and Alliance Boots together will have rights
    to acquire a minority equity position in AmerisourceBergen.
  *To help meet the need for greater access to affordable health services and
    bridge gaps in patient care, while also improving care coordination,
    Walgreens announced its Take Care Clinics now offer an expanded scope of
    health care services. The new services, now available at most of the more
    than 370 Take Care Clinics located at select Walgreens, include
    assessment, treatment and management for chronic conditions such as
    hypertension, diabetes, high cholesterol, asthma and others, as well as
    additional preventive health services.
  *Walgreens Balance® Rewards loyalty program has grown to 75 million
    enrollees. The company announced that members can participate in
    additional health-related activities and goal tracking to earn more points
    through walking, running and weight management goals that can be logged
    and tracked through Steps with Balance Rewards.
  *Walgreens opened new flagship stores in Washington, D.C., Boston, San
    Francisco and the Empire State Building in New York City, showcasing a
    unique pharmacy format that provides comprehensive care such as health
    tests and immunizations, as well as health and daily living offerings like
    fresh food and an enhanced beauty department.
  *Walgreens was among 65 U.S. employers that received the 2013 Best
    Employers for Healthy Lifestyles® award by the National Business Group on
    Health’s Institute on Innovation in Workforce Well-Being. Walgreens was
    honored for its ongoing commitment and dedication to promoting a healthy
    workplace and encouraging its workers and families to pursue and maintain
    healthy lifestyles.

At May 31, Walgreens operated 8,560 locations in all 50 states, the District
of Columbia, Puerto Rico and Guam. The company has 8,097 drugstores
nationwide, 207 more than a year ago. Walgreens also operates worksite health
and wellness centers, infusion and respiratory services facilities, specialty
pharmacies and mail service facilities. Its Take Care Health Systems
subsidiary manages more than 700 in-store convenient care clinics and worksite
health and wellness centers. Walgreens e-commerce business includes
Walgreens.com, drugstore.com, Beauty.com, SkinStore.com and VisionDirect.com.

Walgreens will hold a one-hour conference call to discuss the third quarter
results beginning at 8:30 a.m. Eastern time today, June 25. The conference
call will be simulcast through Walgreens investor relations website at:
http://investor.walgreens.com. A replay of the conference call will be
archived on the website for 12 months after the call. A podcast also will be
available on the investor relations website.

The replay also will be available from 11:30 a.m. Eastern time, June 25
through July 2 by calling 855-859-2056 within the U.S. and Canada, or
404-537-3406 outside the U.S. and Canada, using replay code 69672856.

Cautionary Note Regarding Forward-Looking Statements. Statements in this
release that are not historical, including, without limitation, estimates of
future financial and operating performance, including the amounts and timing
of future accretion and synergies, 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,
"would," "could," "should," "can," "will," "project," "intend," "plan,"
"goal," “target,” "continue," "sustain," "synergy," "on track," "believe,"
"seek," "estimate," "anticipate," "may," "possible," "assume," 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 involve risks, assumptions and
uncertainties, including, but not limited to, those relating to our commercial
agreement with AmerisourceBergen, the arrangements and transactions
contemplated by our framework agreement with AmerisourceBergen and Alliance
Boots and their possible effects, the Purchase and Option Agreement and other
agreements relating to our strategic partnership with Alliance Boots, the
arrangements and transactions contemplated thereby and their possible effects,
the parties' ability to realize anticipated synergies and achieve anticipated
financial results, the risks associated with transitions in supply
arrangements, the risks associated with international business operations, the
risks associated with governance and control matters, whether the option to
acquire the remainder of the Alliance Boots equity interest will be exercised
and the financial ramifications thereof, the risks associated with potential
equity investments in AmerisourceBergen including whether the warrants to
invest in AmerisourceBergen will be exercised and the financial ramifications
thereof, changes in vendor, payer and customer relationships and terms,
changes in network participation, levels of business with Express Scripts
customers, the implementation, operation and growth of our customer loyalty
program, changes in economic and market conditions, competition, risks
associated with new business areas and activities, risks associated with
acquisitions, joint ventures and strategic investments, the ability to realize
anticipated results from capital expenditures and cost reduction initiatives,
outcomes of legal and regulatory matters, and changes in legislation or
regulations. These and other risks, assumptions and uncertainties are
described in Item 1A (Risk Factors) of our most recent Annual Report on Form
10-K and Quarterly Report on Form 10-Q, each of which is incorporated herein
by reference, 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, Walgreens does not
undertake, and expressly disclaims, any duty or obligation to update publicly
any forward-looking statement after the initial distribution 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.

WALGREEN CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
(In Millions, Except Per Share Amounts)

                         Three Months Ended         Nine Months Ended
                          May 31,      May 31,       May 31,      May 31,
                          2013          2012          2013          2012
                                                                    
Net sales                 $  18,313     $  17,752     $  54,276     $  54,560
Cost of sales (1)           13,091       12,738       38,348       39,053
Gross Profit                 5,222         5,014         15,928        15,507
Selling, general and
administrative               4,362         4,141         13,257        12,629
expenses
Equity earnings in           131           -             220           -
Alliance Boots (2)
Gain on sale of             -            -            20           -
business
Operating Income             991           873           2,911         2,878
                                                                    
Interest expense, net        50            17            110           51
Other income                77           -            77           -
Earnings Before              1,018         856           2,878         2,827
Income Tax Provision
Income tax provision        394          319          1,085        1,053
Net Earnings                624          537          1,793        1,774
Net earnings per
common share:
       Basic             $  .66        $  .63        $  1.90       $  2.04
        Diluted           $  .65        $  .62        $  1.88       $  2.03
                                                                    
        Dividends         $  .2750      $  .2250      $  .8250      $  .6750
        declared
                                                                    
Average shares               947.7         859.8         947.7         869.6
outstanding
Dilutive effect of          11.3         5.4          6.8          5.4
stock options
Average Diluted             959.0        865.2        954.5        875.0
Shares
                                                                    
                                                                    
                          Percent of Sales            Percent of Sales
                                                                    
Net sales                    100.0%        100.0%        100.0%        100.0%
Cost of sales               71.5         71.8         70.6         71.6
Gross Margin                 28.5          28.2          29.4          28.4
Selling, general and
administrative               23.8          23.3          24.3          23.1
expenses
Equity earnings in           0.7           -             0.3           -
Alliance Boots
Gain on sale of             -            -            -            -
business
Operating Income             5.4           4.9           5.4           5.3
                                                                    
Interest expense, net        0.3           0.1           0.2           0.1
Other income                0.5          -            0.1          -
Earnings Before              5.6           4.8           5.3           5.2
Income Tax Provision
Income tax provision        2.2          1.8          2.0          1.9
Net Earnings                3.4%         3.0%         3.3%         3.3%
                                                                    
(1) Fiscal 2013 third quarter includes a LIFO provision of $120 million versus
$60 million in the previous year. Fiscal 2013 nine month period includes a
LIFO provision of $247 million versus $177 million in the previous year.
(2) Equity earnings in Alliance Boots exclude the results of Walgreens Boots
Alliance Development GmbH, which is consolidated into the company’s results.


WALGREEN CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED AND SUBJECT TO RECLASSIFICATION)
(In Millions)
                                                                   
                                                                      
                                                                      
                                                           May 31,    May 31,
                                                           2013       2012
Assets
Current Assets:
Cash and cash equivalents                                  $ 2,994    $ 1,995
Accounts receivable, net                                     2,418      2,294
Inventories                                                  6,881      7,004
Other current assets                                        278       277
Total Current Assets                                         12,571     11,570
Non-Current Assets:
Property and Equipment, at cost, less accumulated            12,075     11,790
depreciation and amortization
Equity investment in Alliance Boots                          6,205      -
Alliance Boots call option                                   837        -
Goodwill                                                     2,400      2,168
Other non-current assets                                    1,753     1,671
Total Non-Current Assets                                    23,270    15,629
Total Assets                                               $ 35,841   $ 27,199
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term borrowings                                      $ 1,865    $ 13
Trade accounts payable                                       4,530      4,433
Accrued expenses and other liabilities                       3,221      2,851
Income taxes                                                74        204
Total Current Liabilities                                    9,690      7,501
Non-Current Liabilities:
Long-term debt                                               4,501      2,387
Deferred income taxes                                        577        368
Other non-current liabilities                               2,093     1,903
Total Non-Current Liabilities                               7,171     4,658
Shareholders' Equity                                        18,980    15,040
Total Liabilities and Shareholders' Equity                 $ 35,841   $ 27,199
                                                                        

WALGREEN CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED AND SUBJECT TO RECLASSIFICATION)
(In Millions)
                                                                  
                                                         Nine Months Ended
                                                      May 31,     May 31,
                                                         2013        2012
                                                                     
                                                                     
Cash flows from operating activities:
                                                                     
  Net earnings                                           $ 1,793     $ 1,774
  Adjustments to reconcile net earnings to net cash
  provided by operating activities -
           Depreciation and amortization                   958         856
           Change in fair value of warrants and            (77)        -
           related amortization
           Deferred income taxes                           33          92
           Stock compensation expense                      70          77
           Equity earnings in Alliance Boots               (220)       -
           Other                                           60          27
           Changes in operating assets and liabilities
           -
                     Accounts receivable, net              (214)       230
                     Inventories                           288         1,106
                     Other current assets                  38          33
                     Trade accounts payable                78          (389)
                     Accrued expenses and other            203         (248)
                     liabilities
                     Income taxes                          98          13
                     Other non-current assets and         70         92
                     liabilities
Net cash provided by operating activities                 3,178      3,663
                                                                     
Cash flows from investing activities:
  Additions to property and equipment                      (874)       (1,102)
  Business and intangible asset acquisitions, net of       (588)       (421)
  cash received
  Purchases of short term investments held to maturity     (55)        -
  Proceeds from short term investments held to             5           -
  maturity
  Proceeds from sale of assets                             27          40
  Proceeds (payments) related to sale of business          20          (45)
  Other                                                   (40)       (22)
Net cash used for investing activities                    (1,505)    (1,550)
                                                                     
Cash flows from financing activities:
  Net proceeds from issuance of debt                       4,000       -
  Payments of long-term debt                               (3,000)     -
  Stock purchases                                          (567)       (1,191)
  Proceeds related to employee stock plans                 391         120
  Cash dividends paid                                      (780)       (593)
  Other                                                   (20)       (10)
Net cash provided by (used for) financing activities      24         (1,674)
                                                                     
Changes in cash and cash equivalents:
  Net increase in cash and cash equivalents                1,697       439
  Cash and cash equivalents at beginning of period        1,297      1,556
Cash and cash equivalents at end of period               $ 2,994     $ 1,995
                                                                       

WALGREEN CO. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION (UNAUDITED)
RECONCILIATION OF 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 these 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 and believes 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.

                                                         
                                       Three months ended   Nine months ended
                                       May 31,   May 31,   May 31,   May 31,
                                       2013       2012      2013       2012
Net earnings (GAAP)                    $ 624      $  537    $ 1,793    $ 1,774
Acquisition-related amortization         52          41       182        117
Alliance Boots related tax               44          -        86         -
LIFO provision                           76          38       156        111
Hurricane Sandy costs                    -           -        24         -
Acquisition-related costs                17          12       53         12
DEA settlement costs                     47          -        47         -
Change in fair value of warrants and     (48)        -        (48)       -
related amortization
Gain on sale of Walgreen Health         -          -       (13)      -
Initiatives, Inc.
Adjusted net earnings                  $ 812      $  628    $ 2,280    $ 2,014
                                                                       
Net earnings per common share –        $ 0.65     $  0.62   $ 1.88     $ 2.03
diluted (GAAP)
Acquisition-related amortization         0.05        0.05     0.19       0.15
Alliance Boots related tax               0.05                 0.09       -
LIFO provision                           0.08        0.04     0.16       0.12
Hurricane Sandy costs                    -           -        0.03       -
Acquisition-related costs                0.02        0.01     0.05       0.01
DEA settlement costs                     0.05        -        0.05       -
Change in fair value of warrants and     (0.05)      -        (0.05)     -
related amortization
Gain on sale of Walgreen Health         -          -       (0.01)    -
Initiatives, Inc.
Adjusted net earnings per common       $ 0.85     $  0.72   $ 2.39     $ 2.31
share – diluted

                                                 
                                                       Three months
                                                       ended
                                                     May 31,
                                                       2013
Net cash provided by operating activities (GAAP)       $    1,379
Less: Additions to property and equipment                  293
Free cash flow(1)                                      $    1,086

(1) Free cash flow is defined as net cash provided by operating activities in
a period minus additions to property 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.

Contact:

Walgreens
Michael Polzin, 847-315-2920
http://news.walgreens.com
@WalgreensNews
facebook.com/Walgreens
 
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