Sales increased 11.3% to $131.5 billion

DEERFIELD, Ill. — Walgreens Boots Alliance posted mixed fourth quarter results, as earnings beat expectations but sales fell short of projections.

Stefano Pessina

Adjusted net earnings for the quarter ended August 31 rose 4.5% to $1.4 billion, up 4.5% on a constant currency basis, from a year ago. Adjusted earnings per share were $1.48, up 13% on both an actual and constant currency basis. Analysts had forecast earnings of $1.44 per share. Net earnings increased 88.5% to $1.5 billion, while net earnings per share increased 103.9% to $1.55.

Sales climbed 10.9%  to $33.4 billion, an increase of 11.3% on a constant currency basis, boosted by Walgreens’ pickup of 1,932 Rite Aid stores. But the figure missed the mark of $33.78 billion that analysts had foreseen.

U.S. retail pharmacy sales advanced 14.4% to $25.5 billion. Same-store sales edged up 0.3%, and showed sequential improvement from the third quarter.

“We are pleased to have delivered double-digit percentage growth in earnings per share while returning $6.8 billion to shareholders through share repurchases and dividends in fiscal 2018,” said executive vice chairman and chief executive officer Stefano Pessina. “The integration of the acquired Rite Aid stores is on track, and our pharmacy market share in the U.S. increased year-over-year on an annual basis. We are making progress on our partnership strategy both in the U.S. and internationally, including our most recent announcements with LabCorp, Kroger and Alibaba, which will provide additional opportunities for future growth.”

Fourth quarter operating income was $1.5 billion, up 35.6% from the same quarter a year ago. Adjusted operating income was $1.9 billion, an increase of 0.1%, and 0.3% on a constant currency basis.

Net cash provided by operating activities was $2.9 billion, up $866 million for the quarter. Free cash flow was $2.5 billion, a $921 million more than last year.

Pharmacy sales, which accounted for 73.6% of the U.S. retail division’s sales in the quarter, jumped 16.7% , primarily due to higher prescription volume from the acquisition of Rite Aid stores and from central specialty. Comparable pharmacy sales increased 1.3%, reflecting higher volume. Reimbursement pressure and generics had a negative impact on comparable pharmacy sales growth, partially offset by brand inflation. The division filled 279.8 million prescriptions (including immunizations) adjusted to 30-day equivalents in the quarter, an increase of 11.8% over the year-ago quarter. Prescriptions filled in comparable stores increased 1.3% , primarily due to strategic pharmacy partnerships, partially offset by Medicare Part D. The division filled a record of more than 1 billion prescriptions, adjusted to 30-day equivalents, in fiscal 2018.

The division’s retail prescription market share on a 30-day adjusted basis in the fourth quarter increased approximately 180 basis points over the year-ago quarter to 22.3%, as reported by IQVIA. Market share in fiscal 2018 expanded to 21.7%, the division’s highest ever annual share, compared with 20.2% in fiscal 2017.

Front end sales increased 8.3%, reflecting the acquisition of Rite Aid stores. Same-store front end sales were down 1.9% , with declines in the consumables and general merchandise category and in the personal care category, partially offset by growth in the health and wellness category and in the beauty category.

Gross profit increased 4.1% compared with the same quarter a year ago and adjusted gross profit increased 2.8%.

Fourth quarter selling, general and administrative expenses (SG&A) as a percentage of sales decreased 3.0 percentage points, primarily due to cost savings in the quarter and costs related to acquisitions in the year-ago quarter, partially offset by the higher cost mix of acquired Rite Aid stores. On an adjusted basis, SG&A as a percentage of sales decreased 1.8 percentage points in the same period, due to cost savings and sales mix, partially offset by the higher cost mix of acquired Rite Aid stores.

Operating income in the fourth quarter increased 39.4% from the year-ago quarter to $1.1 billion. Adjusted operating income in the fourth quarter increased 0.1% from the year-ago quarter to $1.4 billion.

The international retail pharmacy division had fourth quarter sales of $2.9 billion, a decrease of 1.9% from the year-ago quarter. Sales decreased 2.7% on a constant currency basis.

Comparable pharmacy sales decreased 3.4% on a constant currency basis, primarily due to lower prescription volume and a decline in UK pharmacy funding. Comparable retail sales decreased 0.9% on a constant currency basis, mainly due to Boots UK, where the beauty category declined in a challenging market, partially offset by higher sales in the health and wellness category. Excluding the UK, comparable retail sales rose 1.1%, with good growth in the Republic of Ireland and Thailand.

Gross profit decreased 0.1% compared with the same quarter a year ago. On a constant currency basis, adjusted gross profit decreased 1.1%.

SG&A as a percentage of sales increased by 0.1 percentage point. Adjusted SG&A as a percentage of sales, on a constant currency basis, increased by 0.7%age point.

Operating income in the fourth quarter increased 6.8% from the year-ago quarter to $234 million, while adjusted operating income decreased 0.8% to $259 million, down 2.3% on a constant currency basis.

The pharmaceutical wholesale division had fourth quarter sales of $5.6 billion, an increase of 2.3% from the year-ago quarter. On a constant currency basis, comparable sales increased 4.7%, with strong growth in emerging markets.

The division’s operating income in the fourth quarter was $163 million, which included a gain of $49 million from the company’s equity earnings in AmerisourceBergen, compared with operating income of $96 million in the year-ago quarter, which included a loss of $8 million from the company’s equity earnings in AmerisourceBergen. Adjusted operating income increased 0.5% to $222 million, up 2.7% on a constant currency basis.

Full fiscal year net earnings attributable to WBA increased 23.2% to $5.0 billion, while net earnings per share increased 33.6% to $5.05, compared with the prior year.

Adjusted net earnings attributable to Walgreens Boots Alliance in fiscal 2018 increased 8.8% to $6.0 billion, up 8.0% on a constant currency basis, compared with the prior year. Adjusted earnings per share increased 18.0% to $6.02, up 17.1% on a constant currency basis, compared with the prior year.

Sales increased 11.3% to $131.5 billion in fiscal 2018 compared with the prior year. On a constant currency basis, sales increased 10.0%.

Operating income in fiscal 2018 was $6.4 billion, up 15.4% from the prior year. Adjusted operating income was $7.8 billion, an increase of 3.5%, and an increase of 2.9% on a constant currency basis.

Net cash provided by operating activities was $8.3 billion in fiscal 2018, an increase of $1.0 billion from fiscal 2017. Free cash flow was $6.9 billion, an increase of $1.0 billion from fiscal 2017.

The company introduced guidance of 7% to 12% estimated growth in fiscal 2019 adjusted earnings per share, at constant currency rates. The guidance assumes current exchange rates for the rest of the fiscal year and results in an adjusted EPS range of $6.40 to $6.70 for fiscal 2019. The guidance also assumes continued execution of the previously announced $10 billion share repurchase program, including the expected repurchase of approximately $3 billion worth of shares in fiscal 2019.