WBA - Earnings call transcript Q4 2018 | Walgreens Boots Alliance, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the Walgreens Boots Alliance Incorporated Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today’s conference, Mr. President Relations Vice Special Senior Gradwell, of and Investor Projects. Gerald ahead. go Please

Gerald Gradwell

Vice Executive morning, welcome James Alex with Co-Chief President here Executive and and Kehoe, and Stefano Boots Alliance Operating and our our Good Financial gentlemen, Gourlay, I’m our to Global ladies Officer; Boots of Officer Walgreens earnings Chief call. Pessina, Officer Walgreens. Chairman Alliance; Walgreens Chief and of today of

comparable forward-looking changes in you whether using statement financial as financial certain directly to we materials In presentation, events, latest otherwise. be risk measures take over you see Please for statements discussion I to Stefano are will through appendix required some harbor to measures. update to We make subject vary safe we comments, information, and or usual, information. in results on Investor on expectations to future and obligation Form results of GAAP non-GAAP current to Relations forward-looking and most as by reconciliations regulatory Certain undertake hand to will, Except the refer made presentation no cause our opening of our new relate a the after and and to and as that in I statements today’s factors the you of a declarations. related available and assumptions to the actual future based XX-Q materially. result legal the are law, this they Before extent this presentation XX-K statements. market, uncertainties our the cautionary website forward-looking publicly constitute presentation, competitive risks for that any could projections

archived link to our this hand the website over the now you on to investor.walgreensbootsalliance.com. be website Stefano. and presentation Investor You’ll After Relations webcast XX for I’ll on will a months. find call, this at webcast

Stefano Pessina

growth for quarter WBA’s up share continued in the a the from the strong be and important our our develop daily pharmacy performance, full-year we since Thank These role of cash per flows Hello, this well that announcing our to generation, inception. year. another believe which financial pleased focus meaning to solid compound mid-teens of with has fourth cash are strong will Gerald. significant lives been delivered the feature resilient systems A growth, wholeI’m you, particularly XX%, national we care businesses and true both customer our in strong the in and our stem future. full-year earnings have customers. I that growth annual health everybody. key play Today, adjusted as

Focusing are it on their delivering to that see continue the U.S. we and work which as in demand from will to update the continued the for James you on we And the in gain will of here budget. on mind, the our market schedule notably acquired is Rite that in progress that of the team integrate to inevitable benefits that to with good in number has a to part very deploy healthcare USA, scale needs customers with the offset continued continue share growth. drive in the encouraging to pressures as and make a grow. stores initiatives, Aid, moment. The on on team occur

in or accelerate and or not capabilities own ourselves. develop easily the expertise infrastructure and our including our offering, all fit our could you transform and resources, our work a strategic of to announcements bring We future. the development the course, formation weeks, past announcement have Of of expanded our of with LabCorp. progress the from organization also to partnerships and part we for that share initiative made be believe that true economically either us and seen have in This as partnerships partnerships significant is in alliances, we skills

You the through numbers. hear partnerships once about us will taken has James these

with I to James. over will hand that, So

James Kehoe

efficient procurement sales for Overall, pressure sequentially solid X.X%. the pharmacy constant more cost a impact good we free currency XX% We in with our basis, results than Adjusted any and offset sheet. balance the we full-year constant and the significant up allowed growth a strong, billion quarter, XX.X%. Stefano, doubled reported $X.X will the generation $X.X repurchases dividends. with XX.X% Thank excluding in cash our in was and and year, good to don’t U.S. in partially $X.X on as Encouragingly, if everyone. EPS the return adjusted quarter management share times, flow billion improved basis. in our impacts savings. comp shareholders XX.X% XX%, you, full-year quarter, cash and set continued XX.X% investments third And the our $X.X with excess we’ve Cash us versus total, billion. constant make of quarter, and Reimbursement both we and the and the EPS In to year, year, this divestitures, morning, cash we in in return to said generation currency on billion an sales and delivered And fourth shareholders the currency. through delivered GAAP strong growth both a grew organic of maintain many retail. to was EPS sales and growth acquisitions of up full-year. the increased fourth in

solid including USA. up share. per transformation key increased our stores of prior On to of XX.X% XX.X% EPS and operating growth EPS the in Turning Rite impact a to growth the X.X%. in acquired sales basis, our increased now constant metrics reflecting an prior earnings, X.X%, was earnings performance performance Slide the Aid Retail year. X% Adjusted net and program and net XX.X% single-digit the advanced versus high increased Pharmacy Sales reflects Adjusted XX%, organic were adjusted up by of count. $X.XX adjusted currency adjusted of income Full-year and was share full-year to X. up absence on GAAP This year $X.X. cost lower results the

primarily points contributed tax repurchase Our than lower share points tax full-year reform. of ongoing X.X was EPS X.X prior The percentage growth. to program U.S. due percentage XX.X%, adjusted year, effective rate approximately

Sales XX.X%, benefit sale and share than and from gain now income Turning the doubled lower a X.X% more share, prior increased our a effective key $X.XX growth currency fourth and to and year. the stores constant of year. of the reflecting the of lower On on quarter highlights. primarily Aid adjusted operating our interest metrics reflecting to $X.XX, and Rite advanced in increased was XX.X% versus per reflecting rate Premise this an GAAP increased to adjusted X%. our basis, repurchases. organic tax of July EPS Adjusted in XX% EPS Sales acquisition the tax rate up Health

impact up a sales increased gross the of was stores growth in performance entirely with than stores. X.X% profit were XX.X% lower Adjusted quarter starting to and USA. margin. Now in our sales let’s and the due offset divisions, The Aid gross SG&A up quarter, the of Retail in acquired the fourth organic quarter. acquired year. Rite spend higher look X.X% the reflecting Sales XX.X%, the Pharmacy more Rite of advanced favorable for X.X% Aid Full-year at sales X.X%. the

spend postretirement and to declined SG&A certain primarily reductions. cost benefits an continued X.X%, employee Excluding Rite due Aid, to amendment

discipline. to full-year of no compared there full-year postretirement of XXXX. impact amount improvement benefits SG&A was points versus Rite third The the the as Adjusted certain quarter amendment of X.X% was comparisons, X.X an had mainly the strong similar prior sales ago percentage of Excluding quarter. Aid, the on cost in declined employee by in year, SG&A a year driven XX.X% quarter,

now has On basis, X.X% of quarters. for adjusted X.X% consecutive the income fourth year. the same increased a SG&A sales operating the improved quarter and percentage Adjusted in XX as in

last with income. we double-digit strong growth fourth a quarter that recall year operating in will lapping You very were adjusted

of adjusted SG&A margin was the full-year to control year, the margins Our by Aid the entirely percentage higher basis, an were of and pharmacy than stores and dilutive X%, Prime X.X retail organic acquired strategic points strong On Rite almost due offset gross operating partnership. lower lower margins. prior impact

XX.X% advanced reflecting move let’s Total of for sales Rite Now fourth growth and mainly pharmacy. year, Aid the X.X%. quarter pharmacy XX.X% organic the and in to

entirely versus Pharmacy slightly were growth points basis, year. XX.X around up XXX due network continued fourth improved was impacted and unfavorable specialty part central rate for our gross reflected % of in X.X% benefit a in profit in margin and to from shift and year. basis The the the increased Comps quarter the lower on number of sequentially transfer led the were Fourth specialty, in way pharmacy to quarter fourth timing, savings. market in Our accounted by single factors partially which increased points the timing. and growth basis up D last third quarter, filled prescriptions Aid year, including The delivered and quarter XX.X%, immunizations digits offset sales compared quarter XX-day in X.X% adjusted year. full-year due reimbursement full-year Medicare to of the and Part was Rite changes. share and a was Comparable prior mid second-half prescriptions XX.X% profit XX%. business stores. compared gross gross the These to procurement prescriptions XXX from included by pressure, the retail by the the which with quarter to the

acquired by the in reflecting declined of held in the compared retail retail. back sales an in third quarter X.X% and comp quarter and increased fourth from sales the sales quarter improved quarter X.X% sequentially to Comp the Turning X.X%. increased next sales Aid year. Rite retail Full-year in the stores. the X.X% to contribution Retail quarter The with the decline year, were factors. two fourth X.X%

XX had of approximately optimization negative a promotional points. impact Firstly, basis

impact cigarettes basis a deemphasized of XXX and our products we negative revenue offering, this led and Secondly, overall to around within points. seasonal

So around margins. these grew stores. retail our health in beauty and in the comp quarter and XXX the improved points two and for fourth sales in explain wellness programs benefiting full-year these of have the categories top basis both decline in both and from the investments year, We enabled sales total, of

in beauty outperform gross the In higher in improved profit sales stores differentiation both in resulted was fact, stores. continue to and Retail retail and an the quarter in total the year. margin these

Excluding retail points expanded XXX basis points in fiscal in year. gross impressive the and margin XX quarter Aid, basis Rite the an

On which, prescription end in towards X.X% in organic the of the sales government X.X% and the at the reimbursement UK UK sales quarter to sales International, in retail Pharmacy full-year, and usual, year. year. X.X% in mainly and in Comp an in in X.X% continuing look and due saw basis, improvement decrease quarter as Comparable decreased down in the X.X% year, were the and X.X% X.X% we the in the currency. quarter declined as let’s the lower is Sales the Retail Next, X.X% year. quarter volume pressure. pharmacy constant

year the difficult of UK quarter, in X.X% market. X.X% up the quarter growth Ireland in Thailand. X.X% were and in good sales were the the down retail retail sales a and retail in Republic comp UK, the Excluding with in Boots comp

changing While business we our continued declined and our a care beauty personal health category, growth businesses. in and wellness drove in

new address lower in as cost performance to content. full-year year. We quarters. are and we’ll the in UK fourth store level quarter. and operating to to allowed on was investing taking X.X% and to be same this the hold future digital at actions our in due last margins quarter management Adjusted income us revenue. retail Good our declined This follow entirely More

operating division, contribution which Adjusted the income from with discuss pressure the Fourth emerging quarter, increased constant higher X.X% Turning relatively AmerisourceBergen. generic strong in in in growth also Wholesale lower X.X%, currency. Pharmaceutical increased to continued and procurement sales markets. quarter now reflecting we’ll

strong store on we the of XXX to rebranding fiscal to also plan. year end Aid move leading XXXX. Aid. track. program a closed you with to The is is the progressing, of in give quick aim volume optimization program favorable execution stores by on is have Rite line optimization on of are and flow, the Rite me I prescription We progressing our Before The integration and well, as with let pilots Integration retention. And year-end, store stores cash complete results update underway.

in synergies million we and had more our per And a line $XXX overall are million estimate and with benefit we optimization originally costs optimization annum, of anticipating ahead store $X.X integration the original now billion. than from forecast. of We be of expect our approximately to total $XXX store

flow. Turning cash now to

tax for of highest of our Free income and the cash benefits. the XX% billion, year of higher was running. We Our inventory a good cash XX.X% was days. $XXX receivables XXXX, lower due of cash flow strong. led fiscal conversion the by reduced cycle to company’s the cash Aid a taxes generation was billion reflecting working to stores partly were $X.X level in history, operating million. result capital as Around acquisition reduction of in up to benefits for non-recurring of Cash the second and approximately and Rite both management $X.X reduction year the the

next Let’s guidance our to year. turn now for

We are EPS projecting XXXX. adjusted of fiscal growth X% constant to currency XX% in

adverse in will course in Our an leads to year. EPS This we $X.XX the of result to tighten the EPS impact currency range approximately range during assumptions an of of and reported dollars, the $X.XX adjusted $X.XX.

in Now, of will some to XX%, project in be XXXX. the items let next year. the depending with We We adjusted effective tax share between line a assumptions me on of rate estimate our tax the level embedded XX% that broadly discrete rate guidance. in of year’s

our in and M&A, $X.XX absent XXXX, mainly can investments healthcare of fuel new U.S. a points major in of store will these $X.X In view In billion $X share making We light investments planning billion tax we And under are our you or which approximately of billion but select the we reforms of the around XXXX year, in repurchases. current was favorable X the these around growth. coming of repurchases of In share community headwind fiscal incremental $X.X returned in initiatives. shareholders, total, also in EPS program. wages, the percentage to million be represent XXXX, $XXX

continuous since a rigorous addition, reduction. we In on inception, have had cost WBA’s and focus

constant investments Alex. points coming currency updates programs In Thank of percentage are assumes or will this X% incremental we And includes over adjusted management and $X.XX, to significant guidance you X we over growth. growth cost guidance projecting of the XX%, now provide Our EPS strategic hand summary, and further to you. quarters. of I’ll

Alex Gourlay

James, everyone. hello, you, Thank and

busy you As from been both have and heard Stefano it’s year. James, a

announced of the U.S. give I of we quick just first business. year, have to let on within the you the financial come a some the of some update end things Before me since initiatives

history. no in the sales has heard of robust. the it healthy the been as trend the the from You’ve number to In U.S. that has market. in numbers. volumes And in in Walgreens’ the And you we for in in in terms The volatility has surprise pricing do the of fueled fourth prescription through XX.X% to U.S. filled last market, volumes create an number growth that a market the element now. of given but and prescriptions reached shift positive U.S. growth growth been come underlying the pharmacy quarter time contract prescription year, the pressures of share of years the time, this prescription mainly will been highest retail

degree a achieving the to Fred’s, since been these acquisition of and to of the announced forecast pending are mentioned year-end, transfers, Scripts confidence Rx both and on script rate also from year’s gives high DaVita positively of Aid than We contribute we’ve which the from script higher the acquisitions. next prescription files us numbers. expected the James retention in Rite acquisition

the achieved bringing are are these into service patients system. that aware of teams good these being demonstrating are customer-centric levels very high our and approach new through and rates retention We our

community-based opened XX% to XX and year-end, specialty in year. taking to total the on the our totaled We Turning specialty. year, further pharmacies over XX XXX in at up last the quarter

will improve team Inovalon management a do. oversight new the they that platform AllianceRx the allow for business We implementation to of of of also cloud-based the enhance pharmacy the ONE announced the and platform, the work and efficiency directly

healthcare of driving patients as to convenience for Walgreens regime. their We part daily value developing who of and online our app have work offering the use on our continued at online

of the X.X been channels quarter, refill initiated quarter Walgreens’ were Our retail have year. times and the on now in XX points million around digital up scripts percentage through downloaded XX.X% around apps last same

try We’ve you time always their to programs validate know, a initiatives estate. our and these to to our these will clear different and elsewhere it potentially in using in be Gainesville of that and continuing we’ve customer underway developed viability. offerings been ideas the to across commercial to stores for to cycle been reaction take and As Florida we’re number stores through Gainesville, assess validated

of our in health Illinois, our points of However, we new Express soon office concept are first mobile be to app to our it and we offering, Gainesville, In neighborhood months, head the we’ve Gainesville an some the in refitted and implementing In network. of inspired for outside we’ll using as Deerfield, store. trial This pickup by concepts quarter, wider trials customers look in pharmacy beyond the is destination and self-checkouts in and a the allowing expanding at stores with also recent its saw work. we’ve beginning store store, expanded to merchandise our characterized scan current health store. close pay

also enhanced More Also change leading FedEx together store roll their Although general our Kroger XX announced over we’re offering really we’re offering, business known in health, the this be in extensive an stores a in type a the real still fresh the beginning is Sprint approach the Walgreens pharmacy, Texas. the overall. of test concept and and our down with merchandising. thinking a time, exciting and and concept offer experience, with own, this early-stage and very trial, our team. care but and our to create in change of in retail skills both Clearly, collaboration the to beauty this resources a The specific flowing in us personal drive-in our to but transformation with in under store-in-store alongside the that this resources new enhancing such beauty care potentially the across internationally, deployed with and opened Birchbox flexible in of the in I’m of its to the offering I’m brings via Walgreens truly to develop personal expertise unique and recently, and in expanded Kroger pharmacy, step announcement the working shows make scale energy a to a initiatives walgreens.com starting to network, demonstrates online you’ve now our to marketplace. in and and expertise, step develop by customer the offering out of a does, healthcare seen that network. our see the stores of is combined develop U.S. an year a to locations concept, excited the its X,XXX stores, customer app, this own initiative to developing stores. expertise. continuing complete which access by and Birchbox could however, rely drive to to offer. we’ve integrated collaboration additional healthcare drive concept The on very U.S. planned and with clearly There’s of can our trial and Walgreens excited success around is our provide areas be Illinois expertise initiative the end every

U.S., Finally our in and we’re healthcare patients pharmacy to the for our stores, the our LabCorp. expanding offering work improve partnership in enhance complement with experience we’re to the doing the

We’re over on open, least, the at at building opened June that locations planning stores to XXXX. data four XXX Walgreens years, LabCorp since patient next the XX centers

with partnership. through of in on with agreement Chinese a an the Tmall a given to September. this that step as to store UK in that. address us We’ve our digital actions long from extremely Outside recently, in some his business back And partnership as our building Alibaba the So a standing we specialist strategies. to has our the to to announced all threat is we retail, brands also partnership and great China, examples head Global exciting In we’re customer has beauty closing retailer, the been is I’m to Alibaba. It on forward-looking demonstrates often market already U.S., to which opportunity highlight, up characterized traditional team Alibaba bring consumers James, joined see the had and which to have to working to growing should Stefano of a presence we’ve flagship UK Boots our by work new market. by comments. Birchbox, platform. with such created great Alibaba, excited I leaders seasoned with year. Kroger challenging opportunities for the take you summary, a this the Sebastian going Boots as he’s hand LabCorp, Xst the challenging far, faced delighted opportunities the are response environment,

Stefano Pessina

you. Thank

their many results, As in our tough or you have good our own a of can holding from markets. our mostly a job businesses see growing done at of in least year

headline we As improved measures. a our company, on have financial year-on-year

We growth. appropriate, the performance to maximize while further usual, and returns on for built with operating as scale as our respectable financial shareholder, future efficiencies have, investing, for

great core have to operational to done of the We company. same at the of our overall performance we continued advance our deal improve transformation time, businesses. the And a have

that heard our our partnerships, key on forward in focus work supports a This expanding three lot have You there and initiatives to and more we’re areas. business are come. our driving

and customers ever closely us done will customers and developing producing omnichannel closer It the daily will much business space. the than physical our across thinking allow before. digital individually into This the to of leading-edge presence pharmacy to a in capabilities more focus bring our our we have and lives stores. on we’re to our of more we move We’ve First, beyond as customer us experience. retail infrastructure, revolutionaize their been our

to it I and business have with our has choose this is we believe shape the importance leading is I’m company. influence partners As our will look easily ever work transformations It the How a the personally. do biggest we seen. that future major of one forward, on this of we such of

comparable our locations and a Most value differentiates market. on other is against stores to modern do Second, customer that crowded our offering our in that retail convenient proposition to and it’s at a we importantly, essential a we transform must that attractive our business retail competitive create builds retailer. this

and the and a care of pure pharmacies, to our well-being of Third, offering. Building expanding a services offer we strong range we intend current on will wide and focus the worldwide, healthcare supported health to retail cases, transform pharmacy with health, destinations. role from beauty in personal unique, pharmacies trusted many create our

an this We’re our beyond company first very actively we for ourselves anything experience knowledge, as sector and and is and they important agile, our the of quickly. alike. the additional customers align partners build marketplace a also They open to that in base. collaborative future enable to by vital and could create do and more of for working omnichannel bring mindset us to for and These customer to growth we resources our choice make people demands so services the needs look that in are products, and us future. partnerships quickly Partnerships the areas changing meet integrated a dynamic demanding our scale, to rapidly

Of we we our the must have strong existing performance today needs the we transformation, from stakeholders. protect deliver undergo and meet continue businesses, to also good expectations financial the position of market course, while our and

is commitment clear. Our

in the have shareholders do to not deploy value return will our it to for near-term capital we We when opportunity the creation. a accretive

to flow the looking that work fiscal the for we And confident with cash robust XXXX year-end. the are excited the our and enthusiasm company. our expect our by Our further benefit will I’m continue our guidance Thank in shareholders. deploy we strong shows transform and forward doing ahead. we of growth I’m year to business you. for the I’m businesses, to in

Now, questions. your take will we

Operator

Jefferies. from Thank question our from you. Tanquilut [Operator Instructions] Brian And first comes

open. is line Your

Brian Tanquilut

morning, guys. Hey, good

question the on the guidance. first Just

well driven an are buybacks. we is basis EBIT you if same-store the how by the store So the EPS organic think in acquisitions, are or guess, Fred’s the as the But of growth thinking top pharmacy U.S.? terms growth your end being the as about Rite growth I grow consider we front largely and of Aid to obviously, thinking how on you and about, in in as ability about line

James Kehoe

Yes. here. Brian. Hi James Hi,

Brian Tanquilut

Hi, James.

James Kehoe

as I’m take think, we’re giving. you the EPS an guidance inclined guidance, forward from only I basis, but it to dissect the

X% So – is X.X% repurchases. sure from, coming I’m is approximately

core two of even low-end that’s And we growth. investments points $XXX looking X.X%. significant the call million, a stores out for So the in guidance, I of think, did of our growth quite we’re business about of at

and a X.X%, So percentage that’s strong we’re statement high-end X.X confidence is saying low-end the of we point is the in future. think the ex-buybacks and

to I further forward year, going QX, as trends to QX as year. then move into in And have second-half. into margin next gross I trends improvement probably look this the we think, see you the the think, a distinct will similar year, actually go average as from the of we we’re

So we gross actually have pretty margin. on good visibility

We cost, The have And ask investments, you strong give file we we as cost a will pipeline, visibility on buys the have perspective but have Alex some on I Aid. Rite strong year, pipeline one to interest factor next increase is, that but maybe, synergies well. of significant would your so there also if a Aid are thing I in say Rite actually into about we’re incurring model. and

relatively year-on-year So is from marginal Aid. Rite the contribution

we Alex ask about how some perspective on give revenue to I’ll think the So us line. maybe

Alex Gourlay

Brian. think… morning, Good James. Thanks, I Yes,

Brian Tanquilut

morning. Good

Alex Gourlay

we’ve And continue growth a in both we first expect the lines, underlying items next all, to year. of seen and quarter. retail …revenue improvement sales improvement in slight that into

good by investments see improvement. to in as now points of promotional the remarks, programs, And which sales one was return example pointed and the in – we’re the encouraged James XX also for margin our about out his continue have basis and and the year larger health this sales impact in these of cycled as investments. more a year from we in around – by As larger, beauty ongoing example, out stores prepared to

the networks January X. On cycle Med through D we’ll the from pharmacy side,

underlying the of the to Aid. pharmacy grow expect pretty in at business, well. is these We next fastest maybe We growing contracts year. know market area And the Rite the therefore, that

that said the from the Rite historically, we good in the Aid a Walgreens They higher by we at really sustained are price. have as and done than encouraged retention, scripts We’re we’re transferring prepared of you’ve seen now to stores. the team their expect job remarks are pharmacies to be important. to up, stores into from customers drive and file buys other we to willing are that important reasonable who the and It’s our sell to contracts add continue

So all to continue believe underlying and of to will growth progress the lead be we’ll year. factors solid see these us through the

Brian Tanquilut

Just follow-up Alex. me. a quick for

about think wage are ability I in minimum you As thinking increase, it the of your how terms impacts about that $XX how Amazon and hire retain employees? to

Alex Gourlay

employer. remain in prepared Amazon local announced fact offer stores, in which and treat people with that we’ve primarily that market remain the into will primarily we investment is terms and competitive therefore, $XXX the as And different we in store recruits of Well, who today the labor. look in also way the them going we we at – have confident a our is warehouses, that very, already very after James people remarks, different And of level in that ways don’t rates. quite remember walk million

retail So walk who shops. primarily those in

Brian Tanquilut

All it. you, Thank guys. right, got

Operator

Thank you.

Our from from next Sachs. Goldman Robert question Jones comes

is open. line Your

Robert Jones

for of Great. guess, excluding growth, buyback. interest Yes, next taking It each seems your on the I the James, offset the thanks EPS expense like kind to comments, and for just question. X.X% tax, X.X% year. other

you expecting control guidance give I contribution around hoping So kind of I relative SG&A you’re bit gross guess, little profit from a growth? could versus continued a just context more to was maybe impressive core

James Kehoe

Yes.

it’s was XX% the reported. constant successful XX% average the three reimbursement gross have the the three – the it’s last last industry an company the I three offsetting EPS for pressure. years, think ongoing that I we and valves last year an XX% that margin over over quite with challenge, for the growth pressure currency, It’s we have. was since point years think, And was I’d been formed.

So is the there. model

will be will better. quarters messy and be some much other And quarters

scale So look business. all, first way we of the have volume. It’s forward is, a we

honestly, our more stores, valuable and the And more a So us the reimbursement of more the for which prescriptions any better kind payers, offset we of makes we are just pressure. partner the the pressure. all can into less we commodity put

second than And The do benefits and there’s SG&A but off be up how scaling reduction gotten a is SG&A. purchase quarters SG&A, we even consecutive one in significantly generics we we better track a actually efforts. percentage compensate multiple the XX think of These are over can tailing years. will I bit, little significant that, the we’ve that. record to on

as well. basis absolute an on inroads better making start can we think I

goods, I that, see oriented. lever office very we on back quite actually come forward goes the look optimization from So general. ZBB in is whereas procurement down, encouraged we which consumer

when and we lean So got very required you’ve that’s cost-efficient will and what’s reimbursement a pressure. company, become

side we’re past. know, been the So anything the I do to focused add extremely And Alex I’m that. you as and has don’t want in on Alex, cognizant, overhead very to

Alex Gourlay

said remind I you just of think James it one I’ll well. And also think is, in technology. thing the investing we’re really I

simplifying pharmacy business replatforming our as in we processes will supply in chain, that are us we the supply us well really investment never opportunities the expect and as and give So before. future we’ve chain, points give both again data for the our and past had retail

SG&A out we remain to take pharmacies and customer the of we improve business online. and continue our in experience that the So focused cost important can confident and to

James Kehoe

Yes.

significant our we improvement the an we to add one margins and had specialties. contract do see to because valve, been we’ve in said, store. three probably – trend in procurement the messy guidance be a the in because have gross this of in very, latter trend, similar XXXX. the Just the And maybe scripts section, numbers the will quarters FEP where the QX very we this of in actually, thing. I the part improving Well, the last mentioned margin and year, mainly items

the business of XXX driving reimbursement in in take differences is FEP the if that the our and lower-margin the margin change mix gross the gross quarter on because is timing and take actually, just So basis you peel But much back, some out margin. growing wasn’t there actually, of slippage. XX% points out quarter, in

headline problem. of But QX margins much, could in it’s of more more start the engine looking to next they explanation year, once up in lap flatter and FEP harder. – start an – we it’s SG&A pushing terms trend, we’re much gross the problem the still So a and going

wanted I Yes. that. recognize So just to

Robert Jones

James. Great. actually That was my follow-up,

stop I’ll there. Thank you. So

James Kehoe

Thanks.

Operator

question Thank our comes Lisa from Gill you. JPMorgan. And next from

is line Your open.

Lisa Gill

Thanks very much. Good morning.

speaking that pharmacists individuals. Walgreens, or that that, headwind? to start about talk pharmacy? First, Can a you on let the order that the that’s gag for with have the lifted on positive your will impact Is the a me is potential being

Alex Gourlay

Lisa, overall, no will have it impact.

the to in as have make low pharmacists talk, encouraged honest, – possible the every for been allowed, it to cost to as occasion. patients be Our

of it’s So this welcome step And have will course, a that, obviously, we forward. no impact. big

Lisa Gill

think is there great. you it’s that we LabCorp several any us points But Okay, think we I lab correlation data as in, metrics Alex, and give next And partnership, can what know about relationship about requisite about giving a as XX relationship, any thus about only far? the there the then can future think a perhaps is a around stores. you’ve we incremental buying when second, that picking that when years? it’s come seen people over prescription, we between up think whether

Alex Gourlay

this team we would obviously for I Walgreens And agreed LabCorp as XXX industry we’re not I which you morning, Boots with. one seen terms is of the for again, patients can’t. have a you of a give in this platform pleased Alliance to Lisa, had not stores is can the think very this in by can results that expand not the But platform big year, platform, with a this convenience. and imagine

in had in our as understanding these about that is partners of further. looking outcomes the why they place with we can of customers future. this to that’s And with whether and things convenience also quicker better to are creating by manufacturers in better LabCorp data, memorandum from their the on a or this business do take to advancing work we form health all et expand or are but about own medicine because develop and health the clinical the pharmacy do getting care convenient we the So in well just whether information their of a cetera, trials, was helping the

it’s great really great patients, We think economics we’re enough. We this good the for think by the and So are it’s industry. excited for partnership.

are that with So we where that’s one.

Lisa Gill

and of Okay, your the think growth? want do around how business really great. think back in that you and strip you the you U.S., all the that is other of what all business see So as issues? And organic But the things then kind I about core about growth, are the conversation Fred’s, just are reimbursement to Just just this. this keeps baseline growing the your one-time, of comments previous about appreciate coming Walgreens we James, underlying strip lastly, underlying the to that core over away think understand to years? of how thoughts away that face next in the several what

James Kehoe

and ask Yes. maybe this. give I’ll you I’ll just Alex thoughts, then onto add to my

business in if our X%. And size industry a and that’s complicated think X.X% for corporation of business with results. on a pressure over at solid on that reimbursement, you I the adjusted was the look growth income the operating U.S. a lot pretty full-year,

So starting base – and the is strong here. pretty

don’t got coming we’ve an you got for forward, of We additional buys I excellence, discount all these bring they’re a and to benefit going and Aid some look periods So We got lot of operational new in the generally of to and in next year. importance Rite general think want couple I in. our halo as in terms industry. partnerships file the a of

got pressure, pressures. we to where we I XX% generally It’s last And and about and a you’ve to activities. of others as year, that’s in such pressure through term, want So three-year But then procurement procurement more short start don’t the horizon. reimbursement effectively up. offset the play guiding the

I left repeating little enough you’ve a to through think, the offset So XX% start. is said bit about points, I I’m seen at And overhead management. what and what’s data

more I these to a toured of with show eyes. countries. could set seen the SG&A see on a the of think, I’ve differently, I just be many I that at tools little neither is procurement look and new you’ve actually in and bit things enough bit I see a data company. that little coming we aggressive fresh in points to general.

they’re they not. sets, we’ve are at I think got I think, good but skill world-class levels? No,

get has of feeling quite why wrong, main the have I can that’s don’t reimbursement. It’s up world-class quite And we is quickly. I’m do But the the these I think is management know, don’t job make easy business, scale not because of an to actually more. we it even about me Alex. box that well-developed the So I think tool good all and business.

Alex Gourlay

you X.X% single the year. to had from going for base in is the Yes, and Lisa, book even whole business able this year, through for sequential Aetna seen the this been one you’ve core preferred the to know. in improvement underlying a items we’ve of I of non-preferred year, where overall X.X% We’ve think, worth driver as And grow prescriptions, business quarter.

file lot and from There’s pick the year difficult the businesses of that, a a that transfers pharmacy And the able So on are to grow been away was underlying. business, to able looking dislocation different seen market. underlying a of top more beyond even in in the move or to who from lot market for what up we’ve at there’s of you’ve we’re companies.

done the But the has the along business that’s the anticipated. well expert. The to had of heading there’s the SG&A. it we in we U.S., that of So in taking in is are that lot may where underway. to is the business and the core the And the first than front-end think a And in That’s volume strong. way us core with beauty, a go, good and is shifting transition we’re of more health, business. longer be signs core wellness clear, very more the James job become strong the a emphasis of to We we’ve described. think terms

So I well-equipped is the very strong. core think, it. we deal The to challenging, with market believe is but we’re

James Kehoe

mentioned the on from bit financial new investments, of excellence And Alex don’t business, just store actually of amounts this systems, and It’s well. brought couple in and will an on that will systems, back store office money spending momentum a in earlier, years, the next be and online the positive impact of significant availability. positive it we’re in both little as systems underestimate U.S. produce in the operational all stock the enormous amount effectiveness

a But animal to execute. be terms it’s it. cycle different to through and it unfortunately, now, will two So have we very ability from multi-year go the a in years of

Stefano Pessina

Lisa, Stefano, Lisa.

here. be Look are first the you told, day ever? since been have very, we to have we what buy able are Will for your you done we at years, cost For Will sustainable? model see be reduce to "Is And that year-after-year, you better we forever? very able delivering.

guidance. given always have We

not correct we You guidance. ended guidance can At we whether see our yourselves by judge where and were the or end, up.

in deliver that we we long our – a still at promise we it that to end for say we I’d promise. something, what our for go you tell power. the continue So so. our we that do demonstrated when And that have to if we buying costs believe we way there’s Well,

Lisa Gill

Okay, great. Thank you.

Operator

Thank you.

Our from next from Percher question Eric Nephron Research. comes

line is open. Your

Eric Percher

of that? and, thoughts impact start picture, do you. authorized the an authorized pharmacy you be with little at To Thank How think hear generic? I’d how about opportunity more limited with interested a quarter on your strategy a to generic a and course, introduction we a of such expansion saw Gilead. the might big generic And this strategy of

Alex Gourlay

it’s very because provides wants. Eric, we the customer here. Hi, the and for and focused very important Alex absolutely customer the anything again, the Yes, are molecules, to to access cost we I think, that on customer open are reduces and care what

us absolutely the types. that think Economically, forward. industry. it’s we with is what molecules I will good happens other and be of similar can impact manage we on to a it for So going a move see overall, interesting one think, small this And

just has is years it’s I a of our So and happening the you of know, for in generics trend. generics about is to been the and XX%, years. years and overall think penetration as these further The U.S., move overall this example and

believe as news marketplace. and very we’ll good the I shifts it news remain pharmacy it’s overall, it’s Walgreens good competitive customer. for in So the for

Eric Percher

Okay. the then commentary so And appreciate for James, I far.

quarter sets the helpful. ask of those a felt gross and on margin, that is, margin gross that how played the where And built? the therefore, in terms large know role we than was next quarterly I Your as What’s the up maybe progression of and take expected. headwinds for FEP have quarter your year? lower you look you would at year the first this was on why And respect course over comment with to I

James Kehoe

only XXX significant I somewhat one Yes. the points XXX QX earlier in part the and was of around point. result – one the about year was specialty, is it The higher significant basis a most basis would and and of one as

So not a big deal.

QX in rest of about it repeat it year. the will will then XXX, talking in and So the tail off

QX, quickly. really out margin the build you impact the business tails if actual your the continue big we’re FEP contract. to So QX, lapping QX But will in because off, projections, just grow

So primary one margin. that’s the in gross

on you adjust comments, you for just your the procurement offset one. you you that if through at, go before is the you whatever and you plot SG&A estimate if I think, look mentioned of or assume at the – at is generics if wrong And either look side. in of I reimbursement won’t majority it

So that’s quarters. kind the through of like work want you the as might model to

our seasonal. is general, in that business not Just

have XX% and in we’ll we it’s we first-half, something XX% – So estimate the is have the years XX%, of then in around and XX% like kind QX, and like somewhere between always that. of

If got relatively predictable. you it’s years, back over – go it’s three

wrong. go won’t you So far too

look you’ll phasing. a the plot out, good back or get you for indication XXXX and on If XXXX it

QX impacts quarter. and you contracts, enormously lumpy are a be quarter. to that, QX on which point basis a – phasing repeat. It difficult will that quarters XX individual gives And predict. had in was reimbursement the We lumpy won’t was Now, impact a

how terms think about to of in I a next more probably we’ve lot year. So enough than given that the past think insights,

So go really to any that. than further I want don’t

Eric Percher

Okay. Thank you.

James Kehoe

full-year grew lower and by Yes. little than the in one we it on side only There’s trend. commentary. AOI look year, adjusted QX little at operating XX%. XX% The a bit prior should income a We’ve the growth, is lost QX, you of the which weakest was the

that tough come really And think of was than stronger a think impression you on in the the on different quarter, would you the a suggest. mind headline about was lapping stack this. then quarter, a do as maybe three-year might what quarter. to And the we’re you bear which we quality So

Operator

Thank question next from George Hill comes you. from And our RBC.

open. is line Your

George Hill

line, the the seems at, down calling I the from like And the about line we AGP guess, U.S. James, Aid morning, good I at and I in to and we we the a we’re three that definitely step slower the for now. saw, for talking the Yes, a of sure guess, business everybody. on gross it, guess it And and want visibility out next of either the and the back expansion, about as to talked line gross guide, things what to in And not color. – then we is, margin but one-time adjusted year, both the we’re I through good guess, much – the Rite contracts? at I’m how core. thinking morning, erosion reimbursement of am the because calling about all the the gross trying sounds you figure like growth negative rate profit change go we of impact make think is you margin dollar maybe, the think go-forward do comment impact? the can to much contribution I we’re mix, in quarter AOI the like calling big – Because degree just erosion. or would much as to – correctly. I it which quarters appreciate how hearing how versus about I’m Is

Alex Gourlay

Alex Hi, really it’s Yes, explained here. I it well. think James

is very timing X, or the what points repeat will have halfway the through FEP has which XXX impact, more also quarter. We’ve The briefly basis that we be and going second less quarter. So January some was issues mentioned just of our said. in by contract James that

visibility differently paid XX then because than what better And or always the mentioned that normal. I And visual previous to this we our time going in it’s to strategy. is of in think the was I basis improvement years. our and also contracts forward in good we lumpy year, don’t annual D us that that think in last on at what contracts and, terms did would quarter the three front-end has some that – year. so I remember, saw are own a points also points. – was And the was nature. I margin invest the of said, we’re I front-end, I basis so got we the James way, the continue think as reimbursement James longer XXX about this This the mean And into full-year is of in either of course, already year, which I Med have by they say think pressure bit seeing commercial you the contracts as four their

was effect we one-off I’ll programs. in and to the a focus points tools that adequate new really got in were return, but sure techniques of say, the make is We of shift that basis believe promotional XX mix we stabilizing some the a that our overinvesting of, So, business. of rest using and in

So we expect to ongoing margin. see in front-end improvement the

but form, know said So James what shape anyway additional if has that’s that I just in don’t color helps already. to or some

George Hill

as help it all. follow-up that James, tailwind? is then, XX% I rate real to XXXX And is it a a fiscal for guess, for imply the a No, would guidance opposed tax tax square XX% quick does headwind actually

James Kehoe

X.X is roughly of of other this tax and points, by elements X.X No, XXX points it’s about, rate we the reform of of talk that tax think X.X there tax the actually I the that offset flat which benefit of to – percentage guide repeal don’t a I that, – if that impacts GILTI tax is negative I X.X was would say and offset and kind is people interesting Section by of the reform. relief is reform

the favorable So tax made reality, we why project tax discrete percentage that’s it’s that to point. a then stuffed won’t judgments XXXX. XXXX other year. the reform now, we of in comment, right a year, is And in X repeat the range items base that’s In next have And it’s net we will probably XXXX are rates X.X XXX favorable roughly GILTI points flat have reform that’s because bear offset because, as I still favorable repeat discrete left of and the I we said, improvement, mind, and relief. will on not-talked about parts points. tax Section one quarter of X.X And rate tax in

it we’re right So as basically now. thinking of of kind flat

Stefano Pessina

remember the group of mildly has you as companies. tax-efficient for because were But and many see, we tax that to favorable us, been have international very you reform

came reform rate were Of effect in negative everything effects and of outside the U.S. or on course, had U.S. that And, a the was course, rate. when tax the in, positive mixed there so we

overall, not hope course, but as as positive, as of U.S. and we So, not companies has mainly could have much as it the enjoyed. other much in based been

James Kehoe

the all sorry, regulations based on And The treasury current our bear and taxes the interpretation department regulations guidance them. in yet. of mind, finalized – of current hasn’t

it evolving So further where clearer, tax gets to. we give when on we’ll update QX, in a see

George Hill

Okay. I call. appreciate you. the Thank

Stefano Pessina

you. Thank

Operator

Muken will you. Thank And from Ross come our Evercore. final from question

line Your open. is

Ross Muken

guys. morning, good Hi,

very others how, the maybe guess, obviously, mergers may So the of through, those incremental kind rate upcoming PBM/reimbursement in of maybe net what businesses relative of of to or just your thinking natural to opportunity? come front, to about in positive the are conflicts entities players some number is positioning look whether weeks. given, the how just like and on a of a negative either you and channel have will given sort think of or ultimately that pressure sort closing sort those I with you

Stefano Pessina

will Let’s net say that tell or net it negative. whether positive time be will

And that M&A We that let’s help position should believe market we profit. some know, that. and and network our the We us positions to on will have open never positive them quite any have creating quite activity. But the of are is, excited improve. improve say, are we excluded improve partnerships now. and We that to of announced just quite our we our overall as you believe

M&A said of any have is that just that for it really open provided kind to we shareholders. creating provided, We value our are

So we evolves. the market will see how

it’s willing we very, these could let’s that of any are see you very advantage and effervescence opportunities very being, negative. say, today, time volatility favorable we the the of what more can we that are, of have take For we than But let’s aware these, to market, to of perceive have. say,

Ross Muken

call the thinking numbers make of guess sure, right in QX reversals North think underlying, how in we base. in or $XXX the incremental those have accrual of American guess, or take, the think investment? the just like, think to of I the look I like least, reversals. I were just base But quarter. was you then do we sort strong at about million SG&A sequential the then maybe and how business some out was the I And of the really compared sort because a outs? called there, sort relative quarter mean, it side, the sounds it I of give SG&A more us to of pension a I’m folks should there to about it think, cadence phasing of fourth benefit terms performance want kind on that there help And legal obviously, kind in of of

James Kehoe

shot take and help out later. I’ll can me Okay, Alex

So I would say that you’re right.

I is the model think, be item the would in adjust or about in quarter. concerned your biggest the I XXX

do similar in So out that on was to this point benefit. that curtailment the year one last we want third a I quarter. had

So achievements, change really the So that’s important. right? basis, on really full doesn’t a year it

has it – the impact it does rate. So run

number SG&A to because So that in I not it’s would we were QX. lower quarter. one a at a the XX.X% plot little due pickup forward, the XXX in

I giving to on want but – don’t SG&A. So guidance start

reductions. as wouldn’t unusually forward. be describe out, project somewhat maybe cost would project we but back something it higher. So would But be would XX.X% to have It that and I the add I will and low, correct

Stefano Pessina

don’t judge But by at the definition, business on to again, look the have volatile. quarter. single A a are business or quarter, you

basis, So understand in judge a have yearly is yearly are you one-off year-over-year. the neutral. heard – these practically on a this elements the that what least elements look should part on we in and to a reality, and case, business at at business try trend basis of And

Alex Gourlay

we profile also, tell a position having operator, a a from you so as cost is good have. in from and starting start good an And place to I can QX

a team great and team led this the by position. Ashworth manage the have operational we business, here as done So to Richard job to get the

on our look to forward, point XXXX of good as a starting start from position So position view. a SG&A from we trend is

Ross Muken

you, Thank Great. guys.

Operator

Thank conference you. does Gerald our for I session And any back Gradwell the over turn conclude that now conference. closing remarks. to today’s like question-and-answer for would to

Gerald Gradwell

didn’t number the call you, to I there Thank call. we a up and questions of do now. were know we had have participating get break you, Crystal, but that you that thank in our everybody, for to,

again and team later you indeed, you IR are the questions here on Thank a have any we’ll for quarter. speak usual in on numbers contacts the you our So much, day. and to further that during very

Operator

the thank and Ladies you gentlemen, for program. participating in conference. conclude This today’s does

all You day. Everyone, wonderful disconnect. may have a

Walgreens Boots Alliance (WBA) 11 Oct 182018 Q4 Earnings call transcript