What's Behind Walgreens Boots Alliance's Nice Jump After Q2 Results

Source: FoolEditorial on Flickr

Walgreens Boots Alliance announced its fiscal 2015 second quarter results before the market opened on Thursday. Shares were up nearly 3% in pre-market trading. Here are the highlights from the company's results.

By the numbersWalgreens (we'll stick with the more familiar name for brevity's sake) reported adjusted earnings of $1.2 billion, or $1.18 per diluted share. That figure handily beat the consensus analysts' estimate of $0.95 per share. It also represented a 21.6% increase in adjusted earnings per share from the same quarter last year. On a GAAP basis, earnings were$2.0 billion, or $1.93 per diluted share, compared to $716 million, or $0.74 per diluted share, in the second quarter of the prior year.

The pharmacy chain announced second-quarter net sales of $26.6 billion. This numberreflected a solid 35.5% year-over-year increase. However, Walgreens missed the average analysts' revenue estimate of $27.77 billion.

Walgreens also reported good news resulting from its consolidation with Alliance Boots. Net synergies of $310 million were achieved during the first six months of fiscal 2015. The company believes that it is still on track to meet or exceed the expected $1 billion in synergy benefits in fiscal 2016.

Behind the numbersThose hefty increases in sales and earnings compared to the prior year stem from bringing Alliance Boots into the company. Generally speaking, it appears that the merger is moving along as anticipated.

Walgreens' climb in pre-market trading shows that the market typically focuses more on earnings than revenue, since the company beat earnings expectations but missed revenue estimates. However, the stock's performance also emphasizes that Wall Street looks to the future most of all -- and is encouraged by what Walgreens had to say.

The company's plans to wring out more cost savings surely made plenty of investors smile. Walgreens announced that it will close 200 stores in the U.S., streamline its information technology systems, and reorganize corporate and field operations. These moves are expected to yield as much as $1.5 billion savings by the end of fiscal year 2017.

Looking aheadThis marked the first quarter that Walgreens reported financial results under its structure following the Alliance Boots merger. But while the name has changed, the positive outlook for the future remains the same.

Walgreens provided full-year adjusted earnings guidance for fiscal 2015 of$3.45 to $3.65 per diluted share. Analysts expect the company will hit $3.61 per share. The company also reaffirmed its previous guidance of$4.25 to $4.60 per share for fiscal year 2016. The consensus analysts' estimate of $4.42 fits comfortably in this range.

Walgreens can count several factors working in its favor. Health reform is one of them, particularly the impact of Medicaid expansion in many states. The demographics of the aging U.S. population is another likely driver for the company's future success.

To capitalize on these trends, though, Walgreens can't rest on its laurels with hungry rivals hoping to increase their own market share. The company's focus on cost savings is smart, but probably more important is Walgreens' reinvestment in its U.S. stores to capture higher profit margins. If Walgreens can effectively execute these goals, investors should continue to enjoy solid returns from this longtime dividend favorite.

The article What's Behind Walgreens Boots Alliance's Nice Jump After Q2 Results originally appeared on Fool.com.

Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.