WAG

Walgreen Co. (WAG)

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Walgreen Company (WAG)

F4Q 2013 Earnings Conference Call

October 1, 2013 8:30 AM ET

Executives

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

Gregory D. Wasson – President and Chief Executive Officer

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

Kermit R. Crawford – President - Pharmacy, Health and Wellness

Analysts

Edward Kelly – Credit Suisse

Meredith Adler – Barclays Capital Inc.

Robert P. Jones – Goldman Sachs & Co.

Robert Willoughby – Bank of America Merrill Lynch

Ricky Goldwasser – Morgan Stanley

Steven Valiquette – UBS

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Walgreen Company’s Fourth Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, today’s call is being recorded.

I’d now like to turn the conference over to your host Rick Hans. Sir, you may begin.

Rick J. Hans

Thank you, Shannon. Good morning, everyone. Welcome to our fourth quarter 2013 conference call. Today, Greg Wasson, our President and CEO; and Wade Miquelon, Executive Vice President, CFO, and President International will discuss the quarter. Also, joining us on the call is Kermit Crawford, President of Pharmacy.

As a reminder, today’s presentation include 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 will 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 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 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.

Gregory D. Wasson

Thank you, Rick. Good morning, everyone, and thank you for joining us on our call. Today, I’ll begin with highlights of our fourth quarter and fiscal year, next I’ll discuss the substantial progress we made in advancing our three key strategic growth drivers, and finally, I’ll take a look ahead to fiscal 2014.

Now, I’ll turn the call over to Wade for a more detailed financial review of the quarter, our full-year performance and the coming year.

Wade D. Miquelon

We’re pleased with our solid performance as we posted record adjusted earnings per share for the quarter of $0.73 generated $1.1 billion in operating cash flow and a record $785 million in free cash flow. We paid off $1.3 billion of senior notes upon maturity consistent with our debt reduction plan.

In addition to our strong financial performance, we also made significant strategic gains in the quarter. We introduced Smart90 Walgreens, our 90-day prescription drug program with Express Scripts. The program gets customers the option to receive their maintenance medications through Walgreens retail pharmacy or Express Scripts home delivery. We also announced our agreement to acquire certain assets of Kerr Drug in early September including their 76 retail drug stores in specialty pharmacy business.

Kerr and its associates will be a great addition to our family of companies. Also in September, we launched another innovation in pharmacies healthcare as we announced our long-term partnership with Theranos to provide new less invasive lab testing services to customers of Walgreen’s. The service is currently available at our Palo Alto, California store and we have plans to expand later this year.

And finally, we successfully transitioned on September 1, the distribution of our branded pharmaceuticals to AmerisourceBergen executing seamlessly to begin our 10-year strategic relationship. Fiscal 2013 was a year of major strategic progress as we advanced the transformation of our company for long-term sustainable growth and value creation.

As you know, we worked hard throughout the year to improve our performance in our daily living business and we continue to see growth and strong results in pharmacy and health and wellness. That performance across our business resulted in a record annual sales of $72.2 billion and record annual adjusted earnings per share of $3.12.

We continue to make progress in our strategic partnership with Alliance Boots achieving $154 million in combined net synergies exceeding our previous estimates of the year of $125 million to $150 million.

We generated $4.3 billion in operating cash flow and a record $3.1 billion in free cash flow. We distributed more than $1 billion in dividends this year to our shareholders increasing the dividends for the 38th consecutive year. We filled a record 821 million prescriptions for fiscal 2013, representing a retail prescription market share of 19.1% for the year.

In addition, we made substantial progress on a number of our key initiatives. We launched our Balance Rewards program last September. The program has now become the fastest growing loyalty program in the world with more than 85 million people enrolled to date.

Alliance Boots has nearly 20 years experience running the leading UK loyalty program and our partnership with them gives us the benefit of their experience, which we will leverage as we continue to enhance our program.

And finally, with our strategic partnership with Alliance Boots and our long-term relationship with AmerisourceBergen, our three companies are best positioned to create a pharmaceutical supply chain unmatched in the world.

Now I’ll take you through the high level results for the quarter. As always we will be presenting numbers on both the GAAP and non-GAAP basis. As you saw on our release this morning, we reported fourth quarter sales of $17.9 billion, up 5.1% from $17.1 billion a year ago.

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