RAD Rite Aid Corp

By Lisa Beilfuss and Paul Ziobro 

Higher prescription sales helped Walgreens Boots Alliance Inc. offset a weak flu season in the latest quarter, as the drugstore operator focuses on acquisitions and cost-cutting to combat sluggish growth.

Walgreens Boots is in the midst of remaking itself to strengthen its position in a U.S. health-care marketplace undergoing a vast overhaul with consolidation in all corners and pressure to drive down costs amid lower reimbursement rates.

The Deerfield, Ill., company has agreed to buy fellow drugstore chain Rite-Aid Corp. for $9.4 billion, a deal that is undergoing antitrust scrutiny and is expected to close later this year. It also recently formed a close partnership with United Healthcare Inc.'s pharmacy-benefit manager OptumRx that Walgreens hopes will drive more patients to its stores.

The latest quarter provided a yardstick to measure the progress of Chief Executive Stefano Pessina since the Italian billionaire took control of the company in late 2014 amid a complicated deal where Walgreens bought the rest of the European drug distributor and retail chain Alliance Boots.

Overall sales at stores open at least a year rose 2.2%, the slowest clip in about three years. Mr. Pessina, the company's largest shareholder with a more-than-$12-billion stake, sought to downplay the quarterly results.

"The work we are doing is far reaching and over time will have a transformative impact," he said. "But quarter to quarter, it is not always easy to find new things to say."

Shares of the company slipped 4.3% in midday trading to $82.65, erasing gains from earlier in the year.

Though quarterly profit fell from last year, when the company recorded a $814 million gain related to the transaction, Walgreens Boots is continuing to cut costs that the new management team identified over the past year.

The expansion of the Medicare Part D program is boosting sales in the company's U.S. pharmacy business, with sales up 3.2% in the second quarter, as the number of prescriptions filled rose 3.9%.

That gain was offset by a slight decline in the front-end of Walgreens U.S. pharmacies, where sales fell 0.3% on a comparable basis. The company, which operates more than 13,000 stores worldwide, has been adding higher end beauty and other merchandise to its renovated stores. Its U.S. drugstore business gets about two-thirds of its revenue from prescriptions.

Both parts of the drugstores were hurt by a weak cold and flu season, with the reported incidences of flu down 16% from a year ago. That hurts sales of prescriptions, but also for over-the-counter flu remedies, hand sanitizers and tissues.

For the quarter, Walgreens Boots' profit was $930 million, or 85 cents a share, down from $2.04 billion or $1.93 a share, last year. Excluding the merger-related gain, among other items, per-share profit rose to $1.31 from $1.18. Analysts anticipated $1.28 in adjusted earnings per share.

Overall sales rose 14% to $30.18 billion, helped by last year's acquisition.

The company raised the low-end of its per-share earnings guidance for the year by a nickel, and now project earnings of $4.35 to $4.55 a share.

Write to Lisa Beilfuss at lisa.beilfuss@wsj.com and Paul Ziobro at Paul.Ziobro@wsj.com

Corrections & Amplifications: The low end of Walgreens' previous full-year forecast was $4.30 in adjusted per-share earnings. An earlier version of this article incorrectly stated the previous forecast. Also, overall sales at Walgreens jumped to $30.18 billion from $26.57 billion a year earlier. The story misstated the previous year's figure.

(END) Dow Jones Newswires

April 06, 2016 02:16 ET (06:16 GMT)

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