October 28, 2019 / 11:23 AM / 18 days ago

Walgreens expects 2020 profit to be flat on lower reimbursements

(Reuters) - Drugstore chain Walgreens Boots Alliance Inc (WBA.O) said on Monday it does not expect adjusted earnings to grow in fiscal 2020 and warned that prescriptions it fills at its pharmacies may fetch lower reimbursements.

Shares of the company were up 1.5% at $56.21 in choppy trading after reporting a better-than-expected fourth-quarter profit.

Walgreens’ stock has been under pressure since the start of the year, particularly after a dismal second quarter, as investor expectations over the company’s growth prospects took a hit in the face of low reimbursement rates.

“It has not been an easy task for us to recover from a very difficult second quarter,” Chief Executive Officer Stefano Pessina said in a call with analysts.

Walgreens has been benefiting from the process of procuring generic drugs to offset growing pressure from insurers and pharmacy benefit managers on reimbursements for filling prescriptions. But of late that came under pressure as prices of such drugs stabilize in the United States.

Michael Cherny, an analyst with Bank of America Merrill Lynch, said the reimbursement rates are the most closely watched metric for investors to understand the growth of the company’s unit that houses its U.S. pharmacies.

Same-store sales at the retail pharmacy division in the United States rose 3.4% from a year earlier and the company said higher prices for patented drugs and prescription volumes helped its profit beat Wall Street estimates.

“The expectation was lower given ongoing pessimism about the ability to generate sustainable operating profit growth,” Cherny said.

Walgreens said it now expects annual savings of $1.8 billion by fiscal 2022 from its cost-cut plan that was announced late last year, up from $1.5 billion. As part of the plan, it had decided in August to close 200 U.S. stores.

Excluding items, Walgreens earned $1.43 per share, beating analysts’ expectations of $1.41 per share.

Revenue rose 1.53% from a year earlier to $33.95 billion.

Shares of the company have fallen 18.9% so far this year, making it the worst performing stock on the bluechip Dow Jones Industrial Average index .DJI.

Reporting by Manas Mishra and Trisha Roy in Bengaluru; Editing by Arun Koyyur

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