The drug store chain updated its timeline for the completion of the merger with the release of its fiscal first-quarter earnings on Tuesday, in which it reported adjusted earnings per share of 81 cents, topping consensus estimates of 74 cents. Walgreen's GAAP EPS came in at 85 cents compared with 72 cents in the year-earlier quarter.
Sales rose 6.7% to $19.6 billion from a year ago, fueled by pharmacy sales. Walgreen's comparable store sales rose 5.7% -- retail products comps rose 1.5% over last year's quarter while pharmacy comps increased 8.1%, the Deerfield, Ill.-based company said Tuesday. The company filled a record 222 million prescriptions in the quarter, an increase of 4.3% over last year's quarter.
Walgreen shares rose 3% to $76.51 on Tuesday. Shares were up an additional 0.58% before the markets opened on Wednesday. Here's what analysts said.
Robert Jones, Goldman Sachs (Not Rated)
WAG's shares outperformed (3.0% vs. S&P 0.2%) on a $0.06 FY1Q EPS beat on progress on cost savings and management's view that there may be upside to its original $650mn synergy goal for FY15. WAG expects this to help mitigate the impact of a meaningful step-down in Medicare Part D reimbursement rates beginning 1/1/15 as well as a continued generic inflation headwind. The conversation on reimbursement rates had a slightly more cautious tone in our view than recent commentary from CVS and RAD, though this likely reflects WAG's decision to expand its preferred Part D relationships to nine national networks (vs. three last year) and accept lower reimbursement as a result. The company expects higher Rx's to offset the lower rates and we think WAG's monthly script comps starting in January will need to show outperformance vs. peers to justify the lower margin rate.
Management was positive on the synergy potential and sees opportunity to exceed its $650mn target for the year, with generics and goods not for resale being possible drivers. FY1Q synergies of $140mn tracked slightly below the $163mn quarterly pace that WAG needs to meet its goal but we maintain our $700mn estimate for the year. WAG's cost savings initiatives also got off to a good start, with SG&A $136mn (3%) below our estimate, and management has identified a path to achieving its guidance for $1bn in cost reductions.