CFO: Walgreen’s 4Q Loss ‘Doesn’t Tell the Whole Story’

(Chicago Tribune/MCT) -

Walgreen Co. reported a loss for the fiscal fourth quarter, after it absorbed a large accounting charge related to its pursuit of European counterpart Alliance Boots GmbH.

The $866 million charge is due to Deerfield, Ill.-based Walgreen exercising its option to buy a remaining stake in health-and-beauty retailer Alliance Boots early. In 2012, Walgreen bought a 45 percent stake in the Swiss company and had until next year to decide whether to buy the rest.

Walgreen lost $239 million, or 25 cents per share for the quarter, compared with earnings of $657 million, or 69 cents per share, a year earlier.

“But this doesn’t tell the whole story,” Walgreen Co.’s new CFO, Timothy McLevish, said on a conference call with analysts.

Excluding the charge, Walgreen’s adjusted results matched Wall Street expectations of earnings per share, adjusted for some items, of 74 cents.

Walgreen shares dropped 33 cents to close Tuesday at $59.27.

“We have much more to do,” Walgreen CEO Greg Wasson said in a statement. “We closed the fiscal year by exercising the option for the second step of our strategic transaction with Alliance Boots, completing the transition of our pharmaceutical distribution to AmerisourceBergen and driving continued improvement in our daily living business.”

The deal with Alliance Boots makes Walgreen a global business, and though the company considered earlier this year moving its corporate headquarters to Switzerland or the United Kingdom to save on taxes, called an inversion, it ultimately decided to stay in the Chicago area. Its new holding company, Walgreens Boots Alliance, will be incorporated in Delaware.

Equity analyst Jeff Windau of Edward Jones, with a hold rating on the company’s stock, said he will be monitoring the rollout of the Alliance Boots acquisition.

“There are always challenges with acquisitions,” Windau said.

But he was generally relieved, he said, that Walgreen hit expectations this quarter.

“We do think management is taking appropriate actions trying to manage their costs,” he said. “They’re becoming more of a role in the health-care of patients. … We think that will help them grow in the long term.”

Vishnu Lekraj, a senior analyst with Morningstar, also has a hold rating on Walgreen. He said drug stores like Walgreen have a disadvantage in the pharmaceutical supply chain.

“They’re facing greater competition, and pharmacy benefit managers can squeeze them from that end,” he said.

Revenue for the quarter rose 6.2 percent to $19.1 billion. Sales at stores open at least a year — a key gauge of retailer health — increased 5.4 percent.

Walgreen earned $1.9 billion, or $2 per share, in its latest fiscal year, which ended Aug. 31, down from $2.5 billion, or $2.56 per share, a year earlier. Sales for the fiscal year increased 5.8 percent to $76.4 billion.

Walgreen also filled a record 856 million prescriptions in fiscal 2014, and said the number of prescriptions filled by Medicare Part D patients – people who receive government subsidies for prescription drugs – increased 9.2 percent in the quarter compared with a year ago. Since the beginning of fiscal 2013, Walgreen Co.’s Medicare Part D prescription market share grew more than twice as fast as its overall prescription market share, the company said.

Still, Wasson said fiscal year 2015 will be affected by lower Medicare Part D reimbursement rates, as well as the rising prices of generic drugs.

It also could be an anxiety-filled year for Walgreen employees, as the company merges with Alliance Boots, Wasson said. Walgreen expects $650 million in savings from the merger in 2015.