Drugstore chain Walgreen Co. (WAG) reported Tuesday a lower third-quarter profit, negatively impacted by its exit from Express Scripts network and costs related to the transaction with pharmacy-led health and beauty group Alliance Boots GmbH. The company also announced a 22.2 percent increase in dividend, marking it the 37th consecutive year of increased dividend.
Walgreens said it will invest about $6.7 billion in cash and stock, which comprise $4 billion in cash and 83.4 million shares, in exchange for a 45 percent equity ownership stake in Alliance Boots. Walgreens will have the option to proceed to a full combination by acquiring the remaining 55 percent in approximately three years' time.
The deal is projected to be accretive to earnings in the first year following completion of the initial step of the transaction by about $0.23 to $0.27, excluding one-time transaction costs. Combined synergies across both companies are expected to be between $100 million and $150 million in the first year and $1 billion by the end of 2016. The initial investment is projected to be completed on September 1, 2012.
At the current Walgreens share price and exchange rate, the second step of the transaction would be valued at about $9.5 billion in cash and stock, plus the assumption of Alliance Boots then-outstanding debt.
In the third quarter, the company's net earnings declined to $537 million or $0.62 per share from $603 million or $0.65 per share reported last year. On average, 21 analysts polled by Thomson Reuters expected the company to report earnings of $0.62 per share. Analysts' estimates typically exclude special items.
Exit from Express Scripts impacted results by 6 cents per share net of cost controls and 1 cent per share due to costs related to the Alliance Boots deal.
Net sales for the quarter dropped 3.4 percent to $17.75 billion from $18.37 billion in the prior-year quarter, which also came below analysts' estimate $17.87 billion. Total sales in comparable stores was down 6.6 percent.
Gross profit margins increased 0.1 percentage point to 28.2 percentage. An increase in pharmacy profit margins was driven by generic drug sales, the company said.
The company also announced a 22.2 percent increase in dividend to 27.5 cents per share. The dividend is payable on September 12, 2012, to shareholders of record on August 17, 2012.
WAG closed Monday's regular trading at $31.96 on the NYSE. In the pre-market activity, the shares are up 2 percent.
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