Walgreens Boots Alliance Reports Fourth Quarter and Fiscal 2016 Results

Fourth quarter highlights

  • GAAP diluted net earnings per share increase to $0.95 from $0.02 in
    the year-ago quarter; Adjusted diluted net earnings per share increase
    21.6 percent to $1.07
  • GAAP net earnings attributable to Walgreens Boots Alliance increase to
    $1.0 billion compared with $26 million in the year-ago quarter;
    Adjusted net earnings attributable to Walgreens Boots Alliance
    increase 20.3 percent to $1.2 billion
  • Sales increase 0.4 percent to $28.6 billion, up 2.5 percent on a
    constant currency basis
  • GAAP operating income increases 36.4 percent to $1.1 billion; Adjusted
    operating income increases 7.2 percent to $1.6 billion, up 10.3
    percent on a constant currency basis

Fiscal 2016 highlights

  • GAAP diluted net earnings per share decrease 4.5 percent from the
    prior year, to $3.82; Adjusted diluted net earnings per share increase
    18.3 percent to $4.59
  • GAAP net earnings attributable to Walgreens Boots Alliance decrease
    1.1 percent to $4.2 billion; Adjusted net earnings attributable to
    Walgreens Boots Alliance increase 22.6 percent to $5.0 billion
  • Sales increase 13.4 percent to $117.4 billion, largely due to
    inclusion of Alliance Boots consolidated results for the entire year
  • GAAP operating income increases 28.6 percent to $6.0 billion; Adjusted
    operating income increases 17.1 percent to $7.2 billion, up 18.9
    percent on a constant currency basis
  • GAAP net cash provided by operating activities increases $2.2 billion
    to $7.8 billion and free cash flow increases $2.1 billion to $6.5
    billion, compared with the prior year

Fiscal 2017 guidance

  • Company introduces guidance of $4.85 to $5.20 for fiscal year 2017
    adjusted diluted net earnings per share

DEERFIELD, Ill.–(BUSINESS WIRE)–Walgreens Boots Alliance, Inc. (Nasdaq: WBA) today announced financial
results for the fourth quarter and fiscal year 2016 that ended 31 August
2016.

Executive Vice Chairman and CEO Stefano Pessina said, “We have continued
to make good progress in putting in place the building blocks for the
future growth of the business. The exercise of the AmerisourceBergen
warrants in August provides an example of the opportunities open to us
to deploy capital, and the agreements we reached with Prime Therapeutics
and with Express Scripts during the quarter demonstrate our commitment
to a more collaborative and partnership-oriented approach. We believe
this can help provide growth for our own company and that of our
strategic partners while delivering better, more efficient and more
effective service to patients and payers alike.”

Overview of Fourth Quarter Results

Fiscal 2016 fourth quarter net earnings attributable to Walgreens Boots
Alliance determined in accordance with GAAP were $1.0 billion compared
with $26 million in the same quarter a year ago, while GAAP diluted net
earnings per share were $0.95 compared with $0.02 in the same quarter a
year ago. The increases in GAAP net earnings and GAAP net earnings per
share reflect fluctuations in the quarterly fair value adjustments of
the company’s AmerisourceBergen Corporation warrants.

Adjusted fiscal 2016 fourth quarter net earnings attributable to
Walgreens Boots Alliance1 increased 20.3 percent to $1.2
billion compared with the same quarter a year ago. Adjusted diluted net
earnings per share for the quarter increased 21.6 percent to $1.07
compared with the same quarter a year ago.

Sales in the fourth quarter were $28.6 billion, an increase of 0.4
percent over the year-ago quarter, or 2.5 percent on a constant currency
basis.

GAAP operating income in the fourth quarter was $1.1 billion, an
increase of 36.4 percent from the same quarter a year ago. Adjusted
operating income in the fourth quarter was $1.6 billion, an increase of
7.2 percent from the same quarter a year ago.

In June, as previously announced, the company achieved its goal set in
2012 to reach at least $1 billion in combined net synergies in fiscal
2016 relating to the strategic combination with Alliance Boots. This
excluded the synergy benefits relating to the company’s strategic,
long-term relationship with AmerisourceBergen, the benefits of
refinancing legacy Alliance Boots debt at a lower cost and the pending
Rite Aid acquisition.

GAAP net cash provided by operating activities was $2.7 billion, and
free cash flow was $2.2 billion, in the fourth quarter.

Overview of Fiscal Year Results

Fiscal 2016 net earnings attributable to Walgreens Boots Alliance
determined in accordance with GAAP decreased 1.1 percent to $4.2
billion, while GAAP diluted net earnings per share decreased 4.5 percent
to $3.82 compared with the prior year. The decrease reflects
fluctuations in the fair value adjustments of the company’s
AmerisourceBergen warrants and the prior year gain on the previously
held equity interest in Alliance Boots, which was largely offset by
increased operating income.

Adjusted net earnings attributable to Walgreens Boots Alliance1
in fiscal 2016 increased 22.6 percent to $5.0 billion compared with the
prior year. Adjusted diluted net earnings per share in the fiscal year
increased 18.3 percent to $4.59 compared with the prior year.

Sales increased 13.4 percent to $117.4 billion in fiscal 2016 compared
with the prior year, due to the inclusion of Alliance Boots consolidated
results for the entire period and an increase at Retail Pharmacy USA.

GAAP operating income in fiscal 2016 was $6.0 billion, an increase of
28.6 percent from the prior year. Adjusted operating income in the
fiscal year was $7.2 billion, an increase of 17.1 percent from the prior
year.

GAAP net cash provided by operating activities increased $2.2 billion to
$7.8 billion, and free cash flow increased $2.1 billion to $6.5 billion
compared with the prior year.

The company’s cost transformation program is on track to deliver $1.5
billion in savings by the end of fiscal 2017. The company now estimates
that total pre-tax charges to its GAAP financial results associated with
the three-year restructuring program will be between $1.3 billion and
$1.5 billion, which is $300 million lower than the previously estimated
range.

Rite Aid Acquisition

Walgreens Boots Alliance’s pending acquisition of Rite Aid Corporation,
which was announced 27 October 2015, is progressing as planned. 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.

As announced on 8 September 2016, Walgreens Boots Alliance remains
actively engaged with the Federal Trade Commission (FTC) regarding its
review of the pending acquisition, and continues to expect that the most
likely outcome will be that the parties will be required to divest
between 500 and 1,000 stores. The company believes that it will be able
to execute agreements to divest these stores to potential buyers,
pending FTC approval, by the end of calendar year 2016, and now expects
its acquisition of Rite Aid will close in early calendar 2017.

Taking into account its current expectation of store divestitures,
Walgreens Boots Alliance continues to expect that the acquisition will
be accretive to its adjusted diluted net earnings per share in the first
full year after closing of the transaction. The company also continues
to expect that it will realize synergies from the acquisition in excess
of $1 billion, to be fully realized within three to four years of
closing. These synergies have been updated where practicable and, as
previously disclosed, are expected to be derived primarily from
procurement, cost savings and other operational matters.

Company Outlook

The company today introduced guidance of $4.85 to $5.20 for fiscal year
2017 adjusted diluted net earnings per share. This guidance assumes
accretion of $0.05 to $0.12 from Rite Aid and is based on the above
disclosure regarding expected store divestitures and timing of closing.
Additionally, this guidance assumes current exchange rates for the rest
of the fiscal year and continuation of its normal anti-dilutive share
buyback program.

Fourth Quarter Business Segment Highlights

Retail Pharmacy USA:

Retail Pharmacy USA had fourth quarter sales of $20.7 billion, an
increase of 4.0 percent over the year-ago quarter. Sales in comparable
stores increased 3.2 percent compared with the same quarter a year ago.

Pharmacy sales, which accounted for 69 percent of the division’s sales
in the quarter, increased 6.2 percent compared with the year-ago
quarter. Comparable pharmacy sales increased 5.0 percent. The division
filled 229.5 million prescriptions (including immunizations) adjusted to
30-day equivalents in the quarter, an increase of 3.7 percent over last
year’s fourth quarter. Prescriptions filled in comparable stores
increased 3.9 percent compared with the same quarter last year,
primarily due to continued growth in Medicare Part D volume. The
division’s retail prescription market share on a 30-day adjusted basis
in the fourth quarter increased approximately 40 basis points over the
year-ago quarter to 19.3 percent, as reported by IMS Health.2

Retail sales decreased 0.5 percent in the fourth quarter compared with
the year-ago period. Comparable retail sales were down 0.3 percent in
the quarter, primarily due to lower sales of certain consumables and
seasonal items, partially offset by higher sales in the health and
wellness and beauty categories. By the end of the fiscal year the first
phase of the new, differentiated beauty offering had reached more than
1,600 stores across the U.S.

GAAP gross profit dollars increased 2.4 percent compared with the same
quarter a year ago. Adjusted gross profit dollars increased 0.5 percent.

GAAP fourth quarter selling, general and administrative expenses as a
percentage of sales decreased 1.6 percentage points versus the year-ago
period, or a decrease of 0.9 percentage point on an adjusted basis.
These results demonstrate continuing benefits from the company’s
previously announced $1.5 billion cost transformation program.

GAAP operating income in the fourth quarter increased 52.4 percent over
the year-ago quarter to $779 million. Adjusted operating income in the
fourth quarter increased 4.4 percent over the year-ago quarter to $1.1
billion. The increase in adjusted operating income was primarily driven
by increased pharmacy volume, procurement efficiencies and cost
controls. The increase in GAAP operating income was also affected by
higher cost transformation and LIFO charges in the prior year quarter.

Retail Pharmacy International:

Retail Pharmacy International had fourth quarter sales of $3.0 billion,
a decrease of 10.9 percent over the year-ago quarter due to the negative
impact of currency translation, with sales increasing by 1.4 percent on
a constant currency basis.

On a constant currency basis, comparable store sales decreased 0.6
percent compared with the year-ago quarter. Comparable pharmacy sales
were flat on a constant currency basis as the previously disclosed loss
of certain institutional sales contracts in Chile offset growth in other
markets. Comparable retail sales decreased 1.0 percent on a constant
currency basis, due to weaker performance in the UK.

GAAP operating income in the fourth quarter increased 4.6 percent over
the year-ago quarter to $205 million, while adjusted operating income
increased 2.1 percent to $247 million, up 15.7 percent on a constant
currency basis.

To improve comparability, certain classification changes have been made
to prior period sales, cost of sales and selling, general and
administrative expenses. These changes have no impact on operating
income.

Pharmaceutical Wholesale:

Pharmaceutical Wholesale had fourth quarter sales of $5.4 billion, a
decrease of 6.2 percent over the year-ago quarter. On a constant
currency basis, excluding acquisitions and dispositions, comparable
sales increased 2.9 percent, which was marginally behind the company’s
estimate of market growth weighted on the basis of country wholesale
sales.

GAAP operating income in the fourth quarter was $156 million, which
included $34 million from the company’s equity earnings in
AmerisourceBergen, compared with $133 million in the year-ago period.
Adjusted operating income increased 31.6 percent to $208 million, up
39.2 percent on a constant currency basis, of which 31.6 percentage
points were due to equity earnings in AmerisourceBergen.

As previously disclosed, on 25 August 2016 Walgreens Boots Alliance
exercised its second tranche of warrants to purchase approximately 22.7
million shares of AmerisourceBergen common stock for an aggregate
payment of approximately $1.19 billion, increasing its ownership to
approximately 24 percent.

Comparability of Results

Following the strategic combination with Alliance Boots on 31 December
2014, Walgreens Boots Alliance results for the three months ended 31
August 2015, and the three months and fiscal year ended 31 August 2016,
include the results of Alliance Boots on a fully consolidated basis,
while the fiscal year ended 31 August 2015 includes the results of
Alliance Boots for eight months (January through August 2015) on a fully
consolidated basis and as equity income from Walgreen Co.’s pre-closing
45 percent interest in Alliance Boots for four months (September through
December 2014).

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. The company has also
reclassified certain prior period amounts for purposes of increasing
consistency and comparability between the segments.

Fiscal year 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 fourth quarter results beginning at 8:30 a.m. Eastern time today, 20
October 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, 20
October 2016 through 27 October 2016, by calling 855-859-2056 within the
USA and Canada, or 404-537-3406 outside the USA and Canada, using replay
code 80436129.

1 Please see the “Supplemental Information (Unaudited)
Regarding Non-GAAP Financial Measures” at the end of this press release
for more detailed information regarding non-GAAP financial measures.

2 Due to an enhancement to the IMS panel, market shares have
been restated by IMS for the comparable year-ago period.

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, our
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, known or unknown, 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, 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 including our
commercial agreement with AmerisourceBergen, the arrangements and
transactions contemplated by our framework agreement with
AmerisourceBergen and their possible effects, the risks associated with
the company’s equity method investment in AmerisourceBergen, 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, the timing and severity of cough, cold and flu season,
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, including the risks associated with the proposed withdrawal
of the United Kingdom from the European Union, 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, competition, 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 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 and our Quarterly Report on
Form 10-Q for the fiscal quarter ended 31 May 2016, 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, 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 across the USA and Europe. Walgreens Boots
Alliance and the companies in which it has equity method investments
together have a presence in more than 25* countries and employ more than
400,000* people. The company is a global leader in pharmacy-led, health
and wellbeing retail and, together with the companies in which it has
equity method investments, has over 13,200* stores in 11* countries as
well as one of the largest global pharmaceutical wholesale and
distribution networks, with over 390* distribution centers delivering to
more than 230,000** pharmacies, doctors, health centers and hospitals
each year in more than 20* 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 of 31 August 2016, using publicly available information for
AmerisourceBergen.

** For 12 months ending 31 August 2016, using publicly available
information for AmerisourceBergen.

(WBA-ER)

 
WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In Millions, Except Per Share Amounts)
 
  Three Months Ended   Twelve Months Ended
August 31,   August 31, August 31,   August 31,
2016 2015 2016 2015
Sales $ 28,636 $ 28,522 $ 117,351 $ 103,444
Cost of sales   21,481   21,327   87,477   76,691
Gross Profit 7,155 7,195 29,874 26,753
Selling, general and administrative expenses 6,049 6,359 23,910 22,400
Equity earnings in AmerisourceBergen 34 37
Equity earnings in Alliance Boots         315
Operating Income 1,140 836 6,001 4,668
 
Gain on previously held equity interest (143) 563
Other income (expense)   264   (479)   (261)   685
Earnings Before Interest and Income Tax Provision 1,404 214 5,740 5,916
 
Interest expense, net   171   255   596   605
Earnings (Loss) Before Income Tax Provision 1,233 (41) 5,144 5,311
 
Income tax provision (benefit) 207 (64) 997 1,056
Post tax earnings from other equity method investments   9   9   44   24
Net Earnings 1,035 32 4,191 4,279
 
Net earnings attributable to noncontrolling interests   5   6   18   59
Net Earnings Attributable to Walgreens Boots Alliance, Inc. $ 1,030 $ 26 $ 4,173 $ 4,220
 
Net earnings per common share:
  Basic $ 0.95

 

$ 0.02 $ 3.85

 

$ 4.05
Diluted $ 0.95

 

$ 0.02 $ 3.82

 

$ 4.00
 
Dividends declared per share $ 0.3750

 

$ 0.3600 $ 1.4550

 

$ 1.3725
 
Weighted average common shares outstanding:
Basic   1,082.5   1,091.9   1,083.1   1,043.2
Diluted   1,089.0   1,102.5   1,091.1   1,053.9

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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