Walgreens Names Permanent CEO

Dow Jones Newswires

Walgreens Boots Alliance Inc (O:WBA). on Thursday named Stefano Pessina chief executive officer and lifted its full-year outlook as profit soared in the company's latest quarter.

Shares rose 4.2% in midday trading, adding to the 13% gain notched through Wednesday's close.

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Mr. Pessina, formerly executive chairman at Alliance Boots, served as interim CEO of the newly-merged company following the retirement of Greg Wasson. Mr. Wasson, formerly Walgreens CEO, left after the merger between Walgreens and Alliance Boots was completed last year.

On Thursday, executive chairman James Skinner credited Mr. Pessina with an integration that is "proceeding exceptionally well."

As part of the integration, Walgreens has been implementing a $1.5 billion cost-cutting program through the end of fiscal 2017. During the latest quarter, the company shut nine of a planned 200 store openings. The company also said it cut about 700 jobs in its international retail pharmacy business. For fiscal 2016, Walgreens said it still anticipates at least $1 billion in combined synergies.

The drugstore chain raised its earnings outlook for the year ending in August, now expecting $3.70 to $3.80 a share, up from earlier guidance of $3.45 to $3.65 a share. For the 2016 business year, Walgreens continues to expect $4.25 to $4.60 in per-share profit.

On a call with analysts, though, chief financial officer George Fairweather cautioned that current-quarter earnings would be down sequentially, due to seasonality and the timing of certain expenses stemming from the company's cost reduction plan.

For the period ended May 31, pharmacy sales--which make up about two-thirds of the company's top line--at stores open at least a year grew 9.1% from a year earlier. Prescriptions filled rose 4.1%. Sales in the international segment increased 3.2% on a same-store basis while wholesale pharmaceutical revenue rose 0.2%.

Overall, Walgreens reported a profit of $1.3 billion, or $1.18 a share, up from a year-earlier profit of $714 million, or 74 cents a share. Excluding one-time items, per-share profit rose to $1.02 from 91 cents. Revenue grew 48% to $28.8 billion.

Analysts had anticipated 87 cents in per-share profit and $29.6 billion in sales.

Margins were again the story, said analysts at Evercore ISI, with the domestic business "making solid progress on its multiyear restructuring program." Gross margin in the U.S. retail pharmacy segment contracted to 27.1% from 28.1% a year earlier, and overall gross margin fell two percentage points to 26%. Margins were still better than what some analysts expected, though, and the CFO said Thursday that pharmacy gross margin pressure was consistent with the company's expectations.

Separately on Thursday, the company raised its quarterly dividend and acquired the U.K.-based Liz Earle skin care brand from Avon Products Inc. for about $215.6 million in cash.

The dividend, payable Sept. 11 to stockholders of record on Aug. 19, was raised to 36 cents a share from 33.8 cents.