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Walgreen (WAG)

Q4 2011 Earnings Call

September 27, 2011 8:30 am ET


Gregory D. Wasson - Chief Executive Officer, President and Director

Wade D. Miquelon - Chief Financial Officer and Executive Vice President

Rick J. Hans - Divisional Vice President of Investor Relations & Finance and Assistant Treasurer


John Heinbockel - Guggenheim Securities, LLC, Research Division

Eric Bosshard - Cleveland Research Company

Mark Wiltamuth - Morgan Stanley, Research Division

Thomas Gallucci - Lazard Capital Markets LLC, Research Division

John W. Ransom - Raymond James & Associates, Inc., Research Division

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

Scott Andrew Mushkin - Jefferies & Company, Inc., Research Division

Mark R. Miller - William Blair & Company L.L.C., Research Division

Andrew P. Wolf - BB&T Capital Markets, Research Division



Good day, everyone, and welcome to the Walgreen Company Fourth Quarter 2011 Earnings Conference Call. As a reminder, today's call is being recorded. And now at this time, I'd like to turn the conference over to Mr. Rick Hans, Division VP of IR. Please go ahead, sir.

Rick J. Hans

Thank you, Kathy. Good morning, everyone. Welcome to our fourth quarter conference call. Today, Greg Wasson, our President and CEO; and Wade Miquelon, Executive Vice President and Chief Financial Officer, will discuss the quarter and fiscal year. Also joining us on the call and available for questions is Kermit Crawford, our President of Pharmacy, Health & Wellness Services and Solutions; and Mark Wagner, President of Community Management. [Operator Instructions]

As a reminder, today's presentation includes certain non-GAAP financial measures, and I would direct you to our website at for reconciliation. Also, I'm available throughout the day by phone to answer any additional questions you may have. You can find a link to our webcast under our Investor Relations website. After the call, this presentation and a podcast will be archived on our website for 12 months.

Certain statements and projections of future results made in this presentation constitute forward-looking information that is based on current market, competitive and regulatory expectations that involve risk and uncertainty. Except to the extent required by law, we undertake no obligation to update publicly any forward-looking statement after this presentation whether as a result of new information, future events, changes in assumptions or otherwise. Please see our latest Form 10-K and 10-Q filings for a discussion of risk factors as they relate to forward-looking statements.

Now I'll turn the call over to Greg.

Gregory D. Wasson

Thank you, Rick. Good morning, everyone, and thank you for joining us on our call. Today, I'll begin with a review of our quarter and fiscal year. Second, I'll provide an update on our status with Express Scripts. And finally, I'll discuss our strategies to become America's first choice for health and daily living. Then I'll turn it over to Wade, who will give you more details on our quarterly and full year performance, offer context around Express Scripts and frame the key considerations for fiscal year 2012.

Starting with our results today, we had a solid quarter and a strong year as we made substantial progress on our transformation strategy. You saw in our release this morning, we reported record fourth quarter sales of $18 billion, up 6.5% from $16.9 billion a year ago. Excluding the after-tax gain from the sale of WHI, our pharmacy benefit manager, which closed in June, fourth quarter EBIT increased to $832 million. Fourth quarter net earnings were $519 million, and fourth quarter earnings per diluted share increased to $0.57.

Our earnings this quarter marked the fifth consecutive quarter of double-digit growth in earnings per share. On a GAAP basis, which included a $434 million of pretax, $273 million after-tax gain or $0.30 per diluted share from the sale of WHI, fourth quarter EBIT was $1.3 billion. Fourth quarter net earnings were $792 million, and fourth quarter earnings per diluted share were $0.87.

In addition to the gain from the sale of WHI, both our reported and our adjusted earnings per diluted share included $0.02 of dilution from our acquisition of and $0.01 of restructuring and restructuring-related costs associated with our Rewiring for Growth initiative.

Last year's fourth quarter results included the negative impact of $0.04 per diluted share related to the acquisition of Duane Reade and $0.01 per diluted share in Rewiring for Growth costs. As we've previously stated, in fiscal 2012, we expect $0.03 to $0.04 of dilution related to Now turning to our performance for the fiscal year, we posted record sales of $72.2 billion, up 7.1% from $67.4 billion last year. Excluding the after-tax gain from the sale of WHI, our adjusted fiscal 2011 EBIT was $3.9 billion, up 13.7%, and our adjusted fiscal 2011 earnings per diluted share were $2.64, a 24.5% increase. On a GAAP basis, including the after-tax gain from the sale of WHI, fiscal 2011 EBIT was $4.4 billion, up 26.2%. Net earnings for the year were $2.7 billion, up 29.8%. In fiscal year 2011, earnings per diluted share were $2.94, up 38.7%. And finally, operating cash flow for fiscal 2011 was $3.6 billion versus $3.7 billion in fiscal 2010.

In the fourth quarter, we grew gross profit dollars at 5.8% or $277 million versus SG&A dollars at 4.8% or $191 million, yielding an $86-million difference. For the full year, the spread between gross profit dollar growth and SG&A dollar growth was $473 million. The spread reflects the success of our strategies to drive top line growth in our front end and our pharmacy and health and wellness services while carefully managing our costs.

Overall, our strong performance and solid results this year demonstrated that we are on the right track in our transformation as we continue to leverage the best store network in America and expand our Pharmacy, Health and Wellness Solutions. And most of all, our results this year demonstrated the value that Walgreens provides every day in communities across our nation.

Let me touch on some of the key milestones we achieved in fiscal 2011. On the pharmacy and healthcare side, Walgreens now fills 1 out of every 5 retail prescriptions in America with a record 819 million prescriptions filled, an increase of 5.3% in fiscal 2011. We also administered 6.4 million flu shots during the last flu season as we continued to be the largest provider of flu shots in the country outside of the government.

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