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Walgreens Q2 profit, sales miss; slashes forecast and expands cost cuts

Walgreens reported second quarter sales and earnings on Tuesday that missed analysts’ expectations and lowered its 2019 forecast amid a “most difficult” quarter.

The company said it would cut more than $1.5 billion in costs by fiscal 2022, up from the $1 billion it had announced last quarter.

Net income totaled $1.16 billion in net income, or $1.24 per share, down from $1.35 billion, or $1.36 per share, in the year-ago period. Adjusted earnings were $1.64 per share, missing analysts’ estimates of $1.72 per share. Walgreen cited declining generic drug prices and reimbursement pressure as weighing on its results.

Total revenue rose 4.6% to $34.53 billion. Analysts had been looking for $34.56 billion. Comparable retail sales fell 3.8%, which Walgreens attributed primarily to a weaker cold and flu season than in its prior fiscal year.

“The market challenges and macro trends we have been discussing for some time accelerated, resulting in the most difficult quarter we have had since the formation of Walgreens Boots Alliance,” said executive vice chairman and CEO Stefano Pessina. “During the quarter, we saw significant reimbursement pressure, compounded by lower generic deflation, as well as continued consumer market challenges in the U.S. and U.K. While we had begun initiatives to address these trends, our response was not rapid enough given market conditions, resulting in a disappointing quarter that did not meet our expectations. As a result, we are now expecting roughly flat adjusted EPS growth for fiscal 2019.”

Walgreens said it now expects full-year earnings for 2019 to be roughly flat, compared with its previous forecast which called for growth of 7% to 12%.

Pessina said that Walgreens will be more aggressive to the rapidly shifting trends that affected its business in the second quarter, including making a number of senior appointments to bring change and accelerate the “digitalization and transformation” of its business.

“This will include expediting the execution of our partnership initiatives, fully developing our in-store neighborhood health destinations, re-imagining our front end retail offering, optimizing our store footprint and increasing the annual savings goal of our transformational cost management program from in excess of $1 billion to more than $1.5 billion,” he said. “As a result of these actions, our business model will deliver improved performance in fiscal 2020, positioning us for mid-to-high single-digit growth in adjusted EPS in the following years.”
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