Walgreens starts fiscal 2019 better than analysts expected

Walgreens Boots Alliance topped Wall Street forecasts for its fiscal first quarter, helped partially by a sales boost provided by stores acquired from smaller rival Rite Aid.

The company also said Thursday that it started a cost-management program that aims to achieve at least $1 billion in annual cost savings in a few years.

Revenue for the drugstore chain jumped about 10 percent to $33.8 billion in the period that ended Nov. 30, with the Rite Aid stores accounting for much of that growth in the global company’s U.S. division. Walgreens spent more than $4 billion to acquire nearly 2,000 stores from Rite Aid in a deal it closed last year.

Walgreens said Thursday that it saw its profit jump 37 percent to $1.12 billion in this year’s first quarter. Earnings adjusted for one-time gains and costs totaled $1.46 per share.

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Analysts expected, on average, earnings of $1.43 per share on $33.58 billion in revenue, according to Zacks Investment Research.

Company executives said that as part of the cost-management program, it has already restructured its retail businesses in Chile and Mexico to address low margins there. It is also taking steps to improve profitability in its pharmaceutical wholesale business.

The company indicated the program will lead to shutting some stores and warehouses. It did detail potential job losses but Chief Financial Officer James Kehoe said in a conference call that “typically, out of $1 billion, at least 70 percent comes from non-people cost.”

Walgreens runs more than 18,500 stores in 11 countries and, along with CVS Health Corp., is one of the two biggest chains in the U.S. drugstore market. Sales for the company’s U.S. retail pharmacy division jumped more than 14 percent in the quarter, while international sales fell nearly 6 percent to $2.9 billion.

Walgreens announced late Wednesday a collaboration with Alphabet company Verily that will aim to improve the health of customers with chronic conditions, especially those with diabetes. Walgreens and Verily said they will start by focusing on ways to help people stay on their medications.

Drugstore chains are getting more active in trying to manage customer health as they face retail sales pressure from competitors like the online giant Amazon.com. Plus health care companies in general are focusing more on monitoring and improving patient health. Insurers are paying for that more frequently as they move away from a system that simply reimburses care providers for each service performed.

Critics say the old approach leads to overuse of care and doesn’t push anyone to help improve the patient’s overall health and ultimately cut costs.

Shares of Deerfield, Illinois-based Walgreens Boots Alliance Inc. fell 5 percent, or $3.68, to close Thursday at $69.61, as broader indexes slumped. Walgreens joined the Dow Jones industrial average earlier this year, and its stock price is down 4 percent since the beginning of the year.

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Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on WBA at https://www.zacks.com/ap/WBA

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