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Walgreens Boots declines as revenue falls short of estimates

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(Bloomberg) — Walgreens Boots Alliance shares dropped Wednesday after the company posted quarterly revenue that fell short of analysts’ projections.

The Deerfield, Illinois-based pharmacy chain posted a revenue increase of 2.4 percent to $29.5 billion for the fiscal third quarter that ended in May, according to a statement Wednesday. Analysts surveyed by Bloomberg had estimated sales of $29.7 billion on average.

Walgreens Boots fell 2.1 percent to $81.42 at 1:32 p.m. in New York.

While the number of drug prescriptions filled at the company’s pharmacies, the biggest part of its operations, rose 3.9 percent to 235 million in the quarter, sales of front-of-the-store convenience products — which include toothpaste, makeup, soap, and food — declined. Pressure from payers to lower drug costs along with the company’s efforts to boost sales with lower prices hurt revenue in the quarter, said Vishnu Lekraj, an analyst at Morningstar Inc.

“They’re trying to drive higher volume through discounts,” he said in a telephone interview. “That’s not a good thing because you can’t discount everything.”

Beauty offering

Walgreens Boots has been remodeling stores with an expanded and more enticing cosmetics area to draw in health-conscious women, who make most of the purchasing decisions in families. Its main competitor, CVS Health Corp., tried a similar effort a few years ago before scrapping it. Investors are looking for more details on this initiative as well on how the company is incorporating operations with U.K.-based Boots Alliance stores after their 2014 merger, Lekraj said.

“There hasn’t been any clear indication if they’re going to be successful or not,” he said. “They’ve been pretty consistent in terms of missing the top line.”

The company has beaten analysts’ average estimate for revenue three times since the fourth quarter of fiscal 2011, according to data compiled by Bloomberg.

Profit excluding some items was $1.18 a share in the fiscal third quarter that ended in May, mainly due to strong prescription drug sales, according to the statement. The average estimate of analysts surveyed by Bloomberg was $1.14 a share.

The company said it’s confident it will receive antitrust regulators’ approval for its $9.4 billion takeover of Rite Aid Corp., a deal that will boost its number of U.S. stores and help it vault past market leader CVS.

Valeant agreement

Walgreens executives said they’re happy with the company’s 20-year distribution agreement with Valeant Pharmaceuticals International Inc., which was set up by the troubled specialty drugmaker’s former Chief Executive Officer Mike Pearson. While current CEO Joe Papa has said there have been “speed bumps” adjusting to the arrangement, he called it a “very strong agreement” on June 14. Valeant rose 12 percent to $22.26.

“We are satisfied and pleased with the performance in the dermatology business, the volume is as expected,” Alex Gourlay, Walgreens co-chief operating officer, said on the call Wednesday.

The company gave further details of its results:

Retail pharmacy sales rose 3.7 percent to $21.2 billion, and same-store sales increased 3.9 percent Low end of 2016 guidance increased to $4.45 to $4.55 a share, compared with past projection in April of $4.35 to $4.55 a share Net income decreased to $1.1 billion, or $1.01 a share, from $1.3 billion, or $1.18 a share, a year earlier Cost reductions for last three quarters were $947 million, including $330 million in the fiscal third quarter.


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