Walgreens Boots Alliance Reports Fiscal 2016 Second Quarter Results

  • Adjusted second quarter net earnings attributable to Walgreens
    Boots Alliance per diluted share increase 11.0 percent to $1.31
    compared with the year-ago period; GAAP net earnings attributable to
    Walgreens Boots Alliance per diluted share decrease 56.0 percent to
    $0.85
  • Adjusted second quarter net earnings attributable to Walgreens
    Boots Alliance increase 14.4 percent to $1.4 billion compared with the
    year-ago period; GAAP net earnings attributable to Walgreens Boots
    Alliance decrease 54.5 percent to $0.9 billion
  • GAAP operating cash flow totals $2.4 billion in the quarter, while
    free cash flow totals $2.0 billion in the quarter
  • Company raises by 5 cents per share its low end of guidance for
    fiscal year 2016 anticipated adjusted net earnings per diluted share
    attributable to Walgreens Boots Alliance to $4.35 to $4.55

DEERFIELD, Ill.–(BUSINESS WIRE)–Walgreens Boots Alliance, Inc. (Nasdaq: WBA) today announced financial
results for the second quarter and first six months of fiscal year 2016
that ended 29 February 2016.

Executive Vice Chairman and CEO Stefano Pessina said, “I am pleased with
how we are working across the company to transform our businesses and
position ourselves for success in rapidly changing markets. In addition,
we continued to make good progress in the quarter in reducing costs and
establishing more efficient working practices, which contributed to
overall adjusted earnings growth. Looking ahead, we remain on track to
achieve our expectations for this fiscal year, as we work to mitigate
lower pharmacy reimbursement rates and challenging retail sales
environments.”

Overview of Second Quarter Results

Fiscal 2016 second quarter net earnings attributable to Walgreens Boots
Alliance determined in accordance with GAAP decreased 54.5 percent to
$0.9 billion compared with the same quarter a year ago, while GAAP net
earnings attributable to Walgreens Boots Alliance per diluted share
decreased 56.0 percent to $0.85 compared with the same quarter a year
ago. The decreases in GAAP net earnings and GAAP net earnings per share
were due to last year’s second quarter non-cash gain of $814 million, or
$0.77 cents per diluted share, associated with the remeasurement to fair
value on 31 December 2014 of the company’s previously-held equity
investment in Alliance Boots, and fluctuations in the quarterly fair
value adjustments of the company’s AmerisourceBergen warrants.

Adjusted fiscal 2016 second quarter net earnings attributable to
Walgreens Boots Alliance1 increased 14.4 percent to $1.4
billion compared with the same quarter a year ago. Adjusted net earnings
attributable to Walgreens Boots Alliance per diluted share for the
quarter increased 11.0 percent to $1.31 compared with the same quarter a
year ago. Fiscal 2016 second quarter earnings adjustments were a net
increase to GAAP net earnings attributable to Walgreens Boots Alliance
of $493 million or 46 cents per diluted share.

Net sales in the second quarter increased 13.6 percent to $30.2 billion
compared with the same quarter a year ago, largely due to the full
consolidation of Alliance Boots for the entire quarter this year, while
foreign currency translation adversely impacted sales by approximately
$750 million or 2.4 percent.

Combined net synergies were $329 million in the fiscal 2016 second
quarter and $617 million in the first six months of fiscal 2016. The
company continues to expect to reach at least $1.0 billion in combined
net synergies in fiscal 2016 relating to the strategic combination with
Alliance Boots. This excludes the synergy benefits related to the
company’s strategic, long-term relationship with AmerisourceBergen, the
benefits of refinancing the legacy Alliance Boots indebtedness at a
lower cost and the proposed Rite Aid acquisition.

Walgreens Boots Alliance GAAP operating cash flow totaled $2.4 billion
in the second quarter, while the company generated free cash flow of
$2.0 billion in the quarter.

Overview of Fiscal 2016 First Half Results

For the first six months of fiscal 2016, net earnings attributable to
Walgreens Boots Alliance determined in accordance with GAAP decreased
29.5 percent to $2.0 billion compared with the same period a year ago,
while GAAP net earnings attributable to Walgreens Boots Alliance per
diluted share decreased 35.1 percent to $1.87 compared with the same
period a year ago.

Adjusted net earnings attributable to Walgreens Boots Alliance1
for the first six months of fiscal 2016 increased 28.2 percent to $2.6
billion compared with the same period a year ago. Adjusted net earnings
attributable to Walgreens Boots Alliance per diluted share for the first
six months of fiscal 2016 increased 18.2 percent to $2.34 compared with
the same period a year ago. Fiscal 2016 first half earnings adjustments
were a net increase to GAAP net earnings attributable to Walgreens Boots
Alliance of $515 million or 47 cents per diluted share.

Net sales increased 28.4 percent to $59.2 billion for the first six
months of fiscal 2016 compared with the same period a year ago, largely
due to the inclusion of Alliance Boots consolidated results for the
entire period.

Walgreens Boots Alliance GAAP operating cash flow totaled $3.1 billion
in the first six months of fiscal 2016, while the company generated free
cash flow of $2.4 billion during the period.

Rite Aid Acquisition

Walgreens Boots Alliance’s proposed acquisition of Rite Aid Corporation,
which was announced 27 October 2015, is progressing as planned with Rite
Aid’s stockholders approving the transaction on 4 February 2016. The
transaction is subject to the expiration or termination of applicable
waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and other customary closing conditions.

Walgreens Boots Alliance is continuing its integration planning and
continues to expect the transaction to close in the second half of
calendar 2016.

Company Outlook

The company is raising by 5 cents per share its low end of guidance for
fiscal year 2016 anticipated adjusted net earnings per diluted share
attributable to Walgreens Boots Alliance to $4.35 to $4.55.

This guidance continues to assume no material accretion from the
proposed acquisition of Rite Aid; equity income from AmerisourceBergen
on a two-month reporting lag; and no significant changes in currency
exchange rates.

Second Quarter Business Segment Highlights

Retail Pharmacy USA:

The Retail Pharmacy USA division, whose principal retail pharmacy brands
are Walgreens and Duane Reade, had second quarter total sales of $21.5
billion, an increase of 2.1 percent over the year-ago quarter. Sales in
comparable stores increased 2.2 percent compared with the same quarter a
year ago.

Pharmacy sales, which accounted for 65.0 percent of the division’s total
sales in the quarter, increased 3.2 percent compared with the year-ago
quarter, while comparable pharmacy sales increased 3.7 percent. The
division filled 233 million prescriptions (including immunizations)
adjusted to 30-day equivalents in the quarter, an increase of 3.9
percent over last year’s second quarter, while the reported incidence of
flu across the USA declined approximately 16 percent compared with the
year-ago quarter, according to IMS Health. Prescriptions filled in
comparable stores increased 2.8 percent compared with the same quarter
last year, driven by growth in Medicare Part D prescriptions, while a
weak cough, cold and flu season had a negative impact of approximately
30 basis points. The division’s retail prescription market share on a
30-day adjusted basis in the second quarter increased approximately 20
basis points over the year-ago quarter to 19.5 percent, as reported by
IMS Health.

Comparable retail sales decreased 0.3 percent in the second quarter
primarily due to soft cough, cold and flu product sales, which had an
estimated negative impact of approximately 100 basis points on
comparable retail sales in the quarter. The division saw strong sales in
giftable products during the holiday season while wellness products,
such as vitamins and first aid, and the company’s product brands, such
as No7, also performed well in the quarter.

Adjusted gross profit dollars for the division grew by $162 million, or
2.8 percent, to $6.0 billion compared with the same quarter a year ago,
primarily driven by increased pharmacy volume and a 10 basis point
increase in adjusted gross profit margin. GAAP gross profit dollars for
the division grew $149 million to $5.9 billion compared with the same
quarter a year ago.

Adjusted second quarter selling, general and administrative expenses in
the division increased by $13 million, or 0.3 percent, to $4.3 billion
compared with the year-ago quarter. The strong cost control resulted
from continued focus on store efficiencies and corporate costs. GAAP
selling, general and administrative expenses in the division decreased
by $89 million, or 2.0 percent, compared with the year-ago quarter.

The division’s GAAP operating income in the fiscal 2016 second quarter
increased 10.6 percent over the year-ago quarter to $1.4 billion.
Adjusted operating income in the second quarter increased 2.1 percent
over the year-ago quarter to $1.6 billion. Excluding the impact from
Alliance Boots equity income, the division’s adjusted operating income
in the second quarter increased 10.0 percent over the year-ago quarter.

Retail Pharmacy International:

The Retail Pharmacy International division, whose principal retail
brands are Boots in the UK, Thailand, Norway, the Republic of Ireland
and The Netherlands, Benavides in Mexico and Ahumada in Chile, had
second quarter total sales of $3.7 billion. On a pro forma constant
currency basis, comparable store sales in the second quarter increased
2.3 percent compared with the same period a year ago, led by growth in
the UK and by strong growth in the Republic of Ireland.

Comparable pharmacy sales increased 2.6 percent in the second quarter
compared with last year’s second quarter, driven by good growth in the
UK.

Comparable retail sales increased 2.1 percent in the quarter compared
with the same period a year ago, driven by Boots in the UK and the
Republic of Ireland. Boots UK growth reflects strong performances for
its “Order & Collect service” and for seasonal categories and the
company’s product brands.

GAAP operating income was $299 million, while adjusted operating income
was $335 million.

Pharmaceutical Wholesale:

The Pharmaceutical Wholesale division, which mainly operates under the
Alliance Healthcare brand, had second quarter total sales of $5.6
billion. On a pro forma constant currency basis and excluding
acquisitions and dispositions, comparable sales increased 1.6 percent
compared with the same period a year ago. Sales growth in the quarter
was in line with the company’s estimate of market growth, weighted on
the basis of country wholesale sales.

GAAP operating income was $134 million, while adjusted operating income
was $155 million.

As announced on 18 March 2016, Walgreens Boots Alliance exercised
warrants to purchase approximately 22.7 million shares of
AmerisourceBergen Corporation common stock for an aggregate payment of
approximately $1.17 billion. The transaction was funded using existing
cash on hand. Walgreens Boots Alliance also continues to hold warrants
to purchase an additional approximately 22.7 million shares of
AmerisourceBergen common stock, which the company has the right to
exercise beginning in March 2017.

Following the exercise of these warrants, the company beneficially owned
approximately 15 percent of the outstanding shares of AmerisourceBergen
common stock and intends to account for its investment in
AmerisourceBergen using the equity method of accounting, subject to a
two-month lag, with the net earnings attributable to its investment
being classified within the operating income of the company’s
Pharmaceutical Wholesale segment.

Comparability of Results

Following the combination with Alliance Boots on 31 December 2014,
Walgreens Boots Alliance results for the three and six months ended 29
February 2016 include the results of Alliance Boots on a fully
consolidated basis, while the three and six months ended 28 February
2015 include the results of Alliance Boots for two months (January and
February 2015) on a fully consolidated basis and as equity income from
Walgreen Co.’s pre-closing 45 percent interest in Alliance Boots for one
month (December 2014) and four months (September through December 2014),
respectively.

Walgreens Boots Alliance has organized its operations and reports
results in three segments: Retail Pharmacy USA, Retail Pharmacy
International and Pharmaceutical Wholesale. Segmental reporting includes
results of operations, the allocation of synergy benefits including
Walgreens Boots Alliance Development GmbH (WBAD) results, and the
allocation of combined corporate costs for periods subsequent to 31
December 2014. The company has determined that it is impracticable to
allocate historical results to the current segmental presentation.
Accordingly, Retail Pharmacy USA segment results for periods prior to 31
December 2014 include all corporate costs of Walgreen Co., the full
consolidated results of WBAD and equity income from Walgreen Co.’s
pre-closing 45 percent interest in Alliance Boots.

Please note that all fiscal 2016 second-quarter comparable sales and
prescriptions filled figures exclude the benefit of this year’s leap day.

Period-over-period comparisons of results require consideration of the
foregoing factors and are not directly comparable.

Conference Call

Walgreens Boots Alliance will hold a one-hour conference call to discuss
the second quarter results beginning at 8:30 a.m. Eastern time today, 5
April 2016. The conference call will be simulcast through the Walgreens
Boots Alliance investor relations website at: http://investor.walgreensbootsalliance.com.
A replay of the conference call will be archived on the website for 12
months after the call.

The replay also will be available from 11:30 a.m. Eastern time, 5 April
2016 through 12 April 2016, by calling 855-859-2056 within the USA and
Canada, or 404-537-3406 outside the USA and Canada, using replay code
64905090.

1 Please see the “Reconciliation of Non-GAAP Financial
Measures” table and accompanying disclosures at the end of this press
release for more detailed information regarding non-GAAP financial
measures herein, including the items reflected in adjusted net earnings
calculations.

Cautionary Note Regarding Forward-Looking Statements: All
statements in this release that are not historical including, without
limitation, those regarding estimates of and goals for future financial
and operating performance (including those under “Company Outlook”
above), the expected execution and effect of our business strategies,
cost-savings and growth initiatives and restructuring activities and the
amounts and timing of their expected impact, and our pending agreement
with Rite Aid and the transactions contemplated thereby and their
possible effects, 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,”
“preliminary,” “would,” “could,” “should,” “can,” “will,” “project,”
“intend,” “plan,” “goal,” “guidance,” “target,” “aim”, “continue,”
“sustain,” “synergy,” “on track,” “headwind,” “tailwind,” “believe,”
“seek,” “estimate,” “anticipate,” “may,” “possible,” “assume,” and
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 are subject to
risks, uncertainties and assumptions that could cause actual results to
vary materially from those indicated or anticipated, including, but not
limited to, those relating to the impact of private and public
third-party payers’ efforts to reduce prescription drug reimbursements,
the timing and severity of cough/cold and flu season, fluctuations in
foreign currency exchange rates, the timing and magnitude of the impact
of branded to generic drug conversions and changes in generic drug
prices, our ability to realize synergies and achieve financial, tax and
operating results in the amounts and at the times anticipated, supply
arrangements, the arrangements and transactions contemplated by our
framework agreement with AmerisourceBergen and their possible effects,
the risks associated with equity investments in AmerisourceBergen
including whether the outstanding warrants to invest in
AmerisourceBergen will be exercised and the ramifications thereof, the
occurrence of any event, change or other circumstance that could give
rise to the termination, cross-termination or modification of any of our
contractual obligations, the amount of costs, fees, expenses and charges
incurred in connection with strategic transactions, whether the costs
associated with restructuring activities will exceed estimates, our
ability to realize expected savings and benefits from cost-savings
initiatives, restructuring activities and acquisitions in the amounts
and at the times anticipated, the timing and amount of any impairment or
other charges, changes in management’s assumptions, the risks associated
with governance and control matters, the ability to retain key
personnel, changes in economic and business conditions generally or in
particular markets in which we participate, changes in financial markets
and interest rates, the risks associated with international business
operations, the risk of unexpected costs, liabilities or delays, changes
in vendor, customer and payer relationships and terms, including changes
in network participation and reimbursement terms, risks of inflation in
the cost of goods, risks associated with the operation and growth of our
customer loyalty programs, risks associated with new business areas and
activities, risks associated with acquisitions, divestitures, joint
ventures and strategic investments, including those relating to
our
ability to satisfy the closing conditions and consummate the pending
acquisition of Rite Aid and related financing matters on a timely basis
or at all, the risks associated with the integration of complex
businesses, outcomes of legal and regulatory matters, including with
respect to regulatory review and actions in connection with the pending
acquisition of Rite Aid, and changes in legislation, regulations or
interpretations thereof. These and other risks, assumptions and
uncertainties are described in Item 1A (Risk Factors) of our Annual
Report on Form 10-K for the fiscal year ended 31 August 2015, 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, we do not undertake, and
expressly disclaim, any duty or obligation to update publicly any
forward-looking statement after the date 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.

Notes to Editors:

About Walgreens Boots Alliance

Walgreens Boots Alliance (Nasdaq: WBA) is the first global pharmacy-led,
health and wellbeing enterprise.

The company was created through the combination of Walgreens and
Alliance Boots in December 2014, bringing together two leading companies
with iconic brands, complementary geographic footprints, shared values
and a heritage of trusted health care services through pharmaceutical
wholesaling and community pharmacy care, dating back more than 100 years.

Walgreens Boots Alliance is the largest retail pharmacy, health and
daily living destination in the USA and Europe and, together with its
equity method investments*, employs more than 370,000* people and has a
presence in more than 25* countries. Walgreens Boots Alliance is a
global leader in pharmacy-led, health and wellbeing retail with over
13,100* stores in 11* countries. The company includes one of the largest
global pharmaceutical wholesale and distribution networks with over 350*
distribution centers delivering to more than 200,000** pharmacies,
doctors, health centers and hospitals each year in 19* countries. In
addition, Walgreens Boots Alliance is one of the world’s largest
purchasers of prescription drugs and many other health and wellbeing
products.

The company’s portfolio of retail and business brands includes
Walgreens, Duane Reade, Boots and Alliance Healthcare, as well as
increasingly global health and beauty product brands, such as No7,
Botanics, Liz Earle and Soap & Glory. More company information is
available at www.walgreensbootsalliance.com.

* As at 31 August 2015, including equity method investments as of
that date

** For 12 months ended 31 August 2015, including equity method
investments as of that date

(WBA-ER)

 
 
WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED AND SUBJECT TO RECLASSIFICATION)
(In Millions, Except Per Share Amounts)
 
    Three Months Ended     Six Months Ended
February 29,   February 28, February 29,   February 28,
2016 2015 2016 2015
Net sales $ 30,184 $ 26,573 $ 59,217 $ 46,127
Cost of sales   22,240     19,691   43,771     33,949
Gross Profit 7,944 6,882 15,446 12,178
Selling, general and administrative expenses 6,084 5,606 12,118 10,062
Equity earnings in Alliance Boots       101       315
Operating Income 1,860 1,377 3,328 2,431
 
Gain on previously held equity interest 706 706
Other income (expense)   (496 )   504   (553 )   703
Earnings Before Interest and Income Tax Provision (EBIT) 1,364 2,587 2,775 3,840
 
Interest expense, net   140     144   278     199
Earnings Before Income Tax Provision 1,224 2,443 2,497 3,641
 
Income tax provision 301 391 468 712
Post tax earnings from equity method investments   9     8   20     8
Net Earnings 932 2,060 2,049 2,937
 
Net earnings attributable to noncontrolling interests   2     18   9     45
Net Earnings Attributable to Walgreens Boots Alliance, Inc. $ 930   $ 2,042 $ 2,040   $ 2,892
 
Net earnings per common share attributable to Walgreens Boots
Alliance, Inc.:
  Basic $ 0.86   $ 1.96 $ 1.88   $ 2.91
Diluted $ 0.85   $ 1.93 $ 1.87   $ 2.88
 
Dividends declared per share $ 0.3600 $ 0.3375 $ 0.7200 $ 0.6750
 
Average shares outstanding 1,080.2 1,043.6 1,084.6 994.7
Dilutive effect of stock options   8.2     11.1   8.9     10.6
Average diluted shares   1,088.4     1,054.7   1,093.5     1,005.3
 
 
WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED AND SUBJECT TO RECLASSIFICATION)
(In Millions)
       
February 29, August 31,
2016 2015
Assets
Current Assets:
Cash and cash equivalents $ 3,586 $ 3,000
Accounts receivable, net 6,733 6,849
Inventories 9,025 8,678
Other current assets   1,034   1,130
Total Current Assets 20,378 19,657
 
Non-Current Assets:
Property, plant and equipment, at cost, less accumulated
depreciation and amortization
14,552 15,068
Goodwill 15,796 16,372
Intangible assets 11,122 12,351
Other non-current assets   4,537   5,334
Total Non-Current Assets   46,007   49,125
Total Assets $ 66,385 $ 68,782
 
Liabilities and Equity
Current Liabilities:
Short-term borrowings $ 1,052 $ 1,068
Trade accounts payable 9,873 10,088
Accrued expenses and other liabilities 5,050 5,225
Income taxes   297   176
Total Current Liabilities 16,272 16,557
 
Non-Current Liabilities:
Long-term debt 12,974 13,315
Deferred income taxes 3,107 3,538
Other non-current liabilities   4,114   4,072
Total Non-Current Liabilities   20,195   20,925
Total Equity   29,918   31,300
Total Liabilities and Equity $ 66,385 $ 68,782

Contacts

Walgreens Boots Alliance, Inc.
Media Relations
USA /
Michael Polzin
+1 847 315 2935
or
International / Laura
Vergani
+44 (0)207 980 8585
or
Investor Relations
Gerald
Gradwell and Ashish Kohli
+1 847 315 2922

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