January 8, 2020 / 12:13 PM / 18 days ago

Walgreens misses profit estimates on pharmacy weakness, shares fall 7%

(Reuters) - Walgreens Boots Alliance Inc’s (WBA.O) quarterly profit missed Wall Street estimates on Wednesday, hit by lower payments from insurers on drugs sold at its U.S. pharmacies, knocking back its shares and those of rival CVS Health Corp (CVS.N).

The company sought to reassure investors, saying it would meet its adjusted full-year profit forecast of roughly flat growth, betting on cost cuts and a harsh flu season.

But shares fell nearly 7% to $55, dragging down those of CVS 2%, as investors worried that the pressure on reimbursement rates from insurers was likely to hurt profits further.

Walgreens has also been struggling with disappointing performance in its Boots UK unit and intense competition from the arrival of Amazon.com Inc (AMZN.O) in the pharmacy market in the past year.

To cushion the impact, Walgreens has closed stores and launched cross-selling partnerships with companies including grocer Kroger Co (KR.N) and weight-loss clinic operator Jenny Craig.

“The changes in our markets are obscuring some of the positive impact we are having,” said Chief Executive Officer Stefano Pessina. “This will not be the case forever.”

Insurers and pharmacy benefit managers in the United States have been seeking to push more of the cost of the drugs they pay for - and reimburse - to the pharmacy chains that actually deliver them to insured consumers.

In recent years, the Deerfield, Illinois-based company had benefited from steep falls in generic drug prices that helped it offset the pressure from lower reimbursement rates, but such declines have slowed in the past year.

“Profitability and sales growth may be hard to come by for the foreseeable future in this era of reimbursement pressure and a rapidly changing health care environment,” said Edward Jones analyst John Boylan.

Walgreens said on Wednesday it had completed 114 of the 200 planned namesake store closures in the United States and 28 of a scheduled 200 Boots UK closures. The company’s cost cutting program, launched in 2018, aims to save more than $1.8 billion annually by 2022.

Boots, acquired in 2014, has struggled with competition from online retailers, as well as a broader decline of the UK high street, which has seen dozens of major retailers collapse in recent years.

FILE PHOTO: A Walgreens pharmacy store sign is photographed in Austin, TX, U.S., March 26, 2018. REUTERS/Mohammad Khursheed/File Photo

Excluding items, Walgreens earned $1.37 per share, short of estimates of $1.41.

Revenue rose 1.6% to $34.34 billion, but missed analysts’ estimate of $34.60 billion.

Shares have fallen 15.3% in the past 12 months, making them the worst performer on the Dow Jones Industrials Average index .DJI.

Reporting by Trisha Roy and Manas Mishra in Bengaluru; Editing by Shinjini Ganguli and Sriraj Kalluvila

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