Walgreens new deal and 2Q earnings surprise

Walgreens reported a better-than-expected profit on flat sales for its second quarter Tuesday morning and unveiled an expanded partnership with AmerisourceBergen that could give the pharmacy operator an equity position and seat on the drug wholesaler’s board.

Sales during the company’s second quarter ended Feb. 28, were flat at nearly $18.7 billion with samestore prescription sales down 2.7% and same-store front end sales down 2.6%. The prior year comparison period included an extra day in February 2012. However, earnings per share adjusted to exclude several one time charges increased 9% to 96 cents, three cents better than consensus forecasts, from 88 cents the prior year. Adjusted net income increased 19.3% to $915 million from $767 million.

"We are pleased with the quarter’s results as we saw substantial strength in our pharmacy performance, leading to strong earnings growth," said Walgreens president and CEO Greg Wasson. "With our Balance Rewards program now totaling more than 60 million enrollments, our preferred status with four national Medicare Part D plan sponsors and our very successful flu shot program this year, our customers are responding to our purpose to help them get, stay and live well."

Walgreen’s results continued to reflect the impact of increasing generic drug usage. The number of prescriptions filled at the company’s 8,072 stores during the quarter increased 6% to 208 million even though same store pharmacy sales declined. Walgreens said it grew its market share by 50 basis points to 19.2%. The company also noted that it administered seven million flu shots during the quarter compared to 5.5 million the prior year. Despite the gain, the company said fewer customers shopped its stores with traffic down 5.2% from the prior year. The decline was offset somewhat by a 2.8% increase in average transaction size.

In conjunction with the release of its financial results, Walgreens and its strategic partner Alliance Boots announced a sweeping new arrangement with AmerisourceBergen. Less than a year ago, Walgreens acquired a 45% stake in Alliance Boots and the companies announced a strategic partnership to create the first global, pharmacy-led health and wellbeing enterprise. Under the agreement the companies announced Tuesday morning, Walgreens will expand its existing relationship with AmerisourceBergen into a 10 year comprehensive primary distribution agreement for branded and generic pharmaceutical products. In addition, Walgreens and Alliance Boots will collaborate with AmerisourceBergen on global supply chain opportunities and will have rights to acquire a minority equity position in AmerisourceBergen that will give both companies one seat on the drug wholesaler’s board.

"Today’s announcement marks another step forward in establishing an unprecedented and efficient global pharmacy-led, health and wellbeing network, and achieving our vision of becoming the first cho