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Walgreen's First Quarter Earnings Outpace All Expectations

December 26, 2014 | About:

U.S. drugstore chain operator Walgreen & Co. (WAG) reported a better-than-expected quarter on December 23 and its profits clearly outpaced the analysts’ estimates sending its shares up by 3.6% soon after the results were declared. The pharmacy chain also reported cost savings during the quarter and as the largest U.S. drug retailer’s financials looked strong enough as it entered into the holiday season, investors were elated and felt happy having invested in the stock. Let’s take a sneak peek into what actually got reported on Walgreen’s first quarter for fiscal year 2015.

Insight into the numbers

The nation’s largest drug store trumped the first-quarter expectations, as it said during the earnings call that its acquisition of the British chain Alliance Boots, which is expected to stoke its global reach and buying clout, would be closing by early next week. The first quarter of fiscal year 2015 saw some good numbers being reported with earnings standing at $809 million or $0.85 a share, from $695 million or $0.72 a share noticed a year earlier.

Revenue rose by a whopping 7% from last year to $19.55 billion. Both revenue and profits outpaced analysts’ consensus who forecasted top line growth to stand around $19.43 billion and earnings per share at $0.74 per share for the quarter.

The pharmacy chain has around 8,230 drug stores and revenue reported from the stores open at least for a year this quarter climbed about 5.7%, aided by 8.1% growth from store pharmacies. Analysts’ are of the opinion that this quarter was undoubtedly one of the solid quarters for Walgreen as it was able to control the costs better than expected over the past several quarters.

In fact the combined cost savings for Walgreen and Alliance Boots in the quarter were about $140 million. The management have reiterated during the earnings call that the retailer is on track to reach its target of $650 million in savings from the Alliance Boots deal in the fiscal year ending August 2015.

Alliance Boots acquisition serves as a sure boost

Walgreen owns a 45% stake in Alliance Boots, and now it’s buying the remaining 55% stake for $15.3 billion. It seems poised to complete the acquisition of the European counterpart before the end of the year. While commenting on the acquisition, CEO Greg Wasson, stated, “Bringing these two iconic brands together will be difficult if not impossible to replicate… It has been my privilege to lead us to this point, to have had the opportunity to bring Walgreens to the world and Alliance Boots to America. ... From everything I know and everything I've learned at this company over the past 35 years, I'm completely confident that the combination of Walgreens and Alliance Boots will truly change the face of global pharmacy retail and I'm even more confident that the best days for our company are still ahead."

Though the margins still remain under immense pressure for the drug retailer, the management remains upbeat on the effects of the acquisition which would impact the upcoming quarters of Walgreen to a considerable extent.

And finally, the countdown

Walgreen seems to be on a growth trajectory and as the merger would introduce extra cost savings for the pharmacy giant, analysts are optimistic on the stock movement in the days ahead. Walgreen might have some challenges to face in the growth journey but the top bosses are taking the right steps to be able to manage the headwinds as they enter another year in the making.

About the author:

reports.droy
We are a group of analysts exploring and analyzing different domains of business and writing reviews based on information available in public domain web portals. We do not hold any stock or investment position in any of the companies that we write for.

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