U.S. Markets close in 33 mins

Walgreens shares plunge 12 percent after 'most difficult quarter'

FILE PHOTO: A customer walks out of a Walgreens pharmacy store in Austin, TX, U.S., March 26, 2018. REUTERS/Mohammad Khursheed/File Photo

By Saumya Joseph and Aakash B

(Reuters) - Walgreens Boots Alliance Inc shares fell 12 percent on Tuesday after the company cut its 2019 earnings growth forecast and reported lower-than-expected quarterly profit in the face of stubbornly low generic drug prices in a crowded market.

The drop in shares wiped off more than $6 billion from the market capitalisation of the worst performing Dow stock this year and weighed on shares of rival CVS Health Corp.

Drug retailers like Walgreens and CVS Health have been saddled with reimbursement pressure as their pharmacies receive less for filing prescriptions coupled with a steep decline in generic drug prices for several years.

"The market challenges and macro trends we have been discussing for some time accelerated, resulting in the most difficult quarter we have had since the formation of Walgreens Boots Alliance," Walgreens Chief Executive Officer Stefano Pessina said.

Walgreens reduced its adjusted earnings growth forecast for fiscal 2019 from a range of 7 percent to 12 percent growth to roughly flat, at constant currency rates.

The magnitude of Walgreens' forecast cut surprised some Wall Street analysts, who had expected it after the company had warned about increased competition and reimbursement pressures at its pharmacies.

While expectations rapidly declined the last four weeks, these results and the forecast missed the most bearish of predictions, Baird analyst Eric Coldwell said.


The company, which expects to save more than $1.5 billion by 2022 through its cost cutting initiatives, said the reimbursement pressure is likely to subside in the second half of the year.

Analysts have questioned Walgreens' strategy of signing partnerships unlike many of its rivals that have chosen to ink multi-billion dollar merger deals to stem the impact from rising pricing pressures. On Tuesday, company executives played down the possibility of an acquisition.

Edward Jones analyst John Boylan said the current drugstore environment may accelerate industry consolidation because there are many small competitors that likely are feeling the same pressures.

"We predict this could lead to increased sales volumes at the larger players, such as Walgreens, over the long term as they gain share from smaller competitors."

Excluding items, the company earned $1.64 per share, missing analysts' expectations of $1.72 per share, according to IBES data from Refinitiv.


(Reporting by Aakash Jagadeesh Babu and Saumya Sibi Joseph in Bengaluru; Editing by Shailesh Kuber and Sweta Singh)