WAG

Walgreen Co. (WAG)

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Walgreen Company (WAG)

F2Q13 Earnings Call

March 19, 2013 8:30 am ET

Executives

Rick J. Hans – Divisional Vice President-Investor Relations and Finance

Greg D. Wasson – President and Chief Executive Officer

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

Analysts

Steven J. Valiquette – United Bank of Switzerland

John E. Heinbockel – Guggenheim Securities

Matthew J. Fassler – Goldman Sachs & Co.

Eric Bosshard – Cleveland Research Co.

Mark Wiltamuth – Morgan Stanley & Co. LLC

Meredith Adler – Barclays Capital, Inc.

Edward J. Kelly – Credit Suisse Securities LLC

Andrew P. Wolf – BB&T Capital Markets

Lisa C. Gill – JPMorgan Securities LLC

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Walgreen’s Second Quarter 2013 Earnings Conference Call. At this time, all participants are in listen-only mode, and later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) And as a reminder, this conference is being recorded.

I would now like to introduce your host for today’s conference, Rick Hans, Divisional Vice President of Investor Relations. Please go ahead.

Rick J. Hans

Thank you, Bethanie, and good morning, everyone. Today, Greg Wasson, President and CEO; and Wade Miquelon, Executive Vice President, CFO and President International will discuss the quarter and this morning’s announcement about our strategic long-term relationship with AmerisourceBergen.

As a reminder, today’s presentation includes certain non-GAAP financial measures, and I would direct you to our website at investor.walgreens.com for reconciliations to the most directly comparable GAAP measures and related information. You can find a link to our webcast on 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 statements that are 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 statements 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 and subsequent filings for a discussion of risk factors as they relate to forward-looking statements.

Now, I'll turn the call over to Greg.

Greg 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 the highlights of our results for the quarter, then I will touch on our announcement earlier today on the Walgreens and Alliance Boots strategic long-term relationship with AmerisourceBergen and how that carries forward one of our three key strategic growth drivers to create an unprecedented global platform through our Alliance Boots partnership. After that I will turn the call over to Wade for more information on our performance this quarter and details of the Walgreens, Alliance Boots, and AmerisourceBergen announcement.

Turning to our overall financial results, we’re pleased to report a solid quarter with adjusted earnings of $0.96 per diluted share and GAAP diluted EPS of $0.79. With that performance were a number of highlights; first, we had operating cash flow for the second quarter of $1.2 billion and free cash flow coming in at $953 million.

Second, our Balance Rewards program continues to show a strong response from our customers with more than 60 million customers enrolled. Third, the Alliance Boots business and synergies are on track with our expectations with accretion to our adjusted EPS of $0.05.

Finally, this morning’s announcement of our strategic long-term relationship with AmerisourceBergen demonstrates how we continue to move forward on our strategy to create a global network for pharmacy lead health and well-being with Alliance Boots.

With those highlight, let me recap our financial results this quarter, as we began doing in the fourth quarter of last year, we’ll present our results both in GAAP and a non-GAAP basis. We reported first quarter sales of $18.6 billion virtually identical to the same quarter a year ago, remember that this quarter includes one less day due to last years leap date, and sales also continue to be impacted by the growth in lower cost generic drugs which are for bottom line.

GAAP operating income or EBIT for the quarter was $1.2 billion, up 10% from $1.1 billion for the same period last year. Non-GAAP adjusted operating income or EBIT for the quarter was nearly $1.4 billion, up 12.9% from just over $1.2 billion in the second quarter 2012. GAAP net earnings for the quarter were up by 10.7% from $683 million or $0.78 per diluted share last year, the $756 million or $0.79 per diluted share this year.

The non-GAAP adjusted net earnings for this quarter were $915 million or $0.96 per diluted share compared to adjusted net earnings of $776 million or $0.88 per diluted share in the same quarter last year.

As I mentioned in January, we came into this year with a number of tailwinds and we capitalized on these positive trends in the second quarter. That's especially true in pharmacy which continues to be on the up swing, like Wade Miquelon will review some of these tailwinds.

For the multiyear contract with Express Scripts, we saw an increasing percentage of those patients returning to us this quarter. Walgreens is now a preferred drugstore for Medicare Part D plans giving these numbers a financial benefit when they chose Walgreens over our competitors. Our reinvigorated private brands led by nice, delish, and well at Walgreens are driving margin and receiving great feedback from our store managers, while they continue to build momentum with customers.

Read the rest of this transcript for free on seekingalpha.com