Walgreen Management Discusses Q1 2013 Results - Earnings Call Transcript
December 21, 2012 1:50 PM ET
Q1 2013 Earnings Call
December 21, 2012 8:30 am ET
Rick J. Hans - Divisional Vice President of Investor Relations & Finance and Assistant Treasurer
Gregory D. Wasson - Chief Executive Officer, President and Director
Wade D. Miquelon - Chief Financial Officer, Executive Vice President and President of International
John Heinbockel - Guggenheim Securities, LLC, Research Division
Mark R. Miller - William Blair & Company L.L.C., Research Division
Deborah L. Weinswig - Citigroup Inc, Research Division
Matthew J. Fassler - Goldman Sachs Group Inc., Research Division
Thomas Gallucci - Lazard Capital Markets LLC, Research Division
Edward J. Kelly - Crédit Suisse AG, Research Division
Good day, ladies and gentlemen, and welcome to the Walgreen First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
I would now turn the call over to your host, Rick Hans. Please go ahead.
Rick J. Hans
Thank you, Stephanie. Good morning, everyone. Welcome to our first quarter conference call. Today, Greg Wasson, President and CEO; and Wade Miquelon, Executive Vice President, CFO and President International, will update you on the quarter. Also joining us on the call and available for questions are Kermit Crawford, President of Pharmacy; and Mark Wagner, President of Store Operations.
As a reminder, today's presentation includes certain non-GAAP financial measures, and I would direct you to our website at investor.walgreens.com for reconciliations to the most directly comparable GAAP measures and related information. You can find a link to our webcast on our Investor Relations website. After the call, this presentation and the podcast will be archived on our website for 12 months.
Certain statements and projections of future results made in this presentation constitute forward-looking statements that are based on current market, competitive and regulatory expectations that involve risk and uncertainty.
Except to the extent required by law, we undertake no obligation to update publicly any forward-looking statement after this presentation, whether as a result of new information, future events, changes in assumptions or otherwise.
Please see our latest Form 10-K filing and subsequent exchange acts filings for a discussion of risk factors as they relate to forward-looking statements.
Now I'll turn the call over to Greg.
Gregory D. Wasson
Thank you, Rick. Good morning, everyone, and thank you for joining us on our call. Today, I'll begin with a review of our results for the quarter. Second, I'll discuss key indicators that show strengthening in our underlying business. And finally, I'll provide an update on our direction and progress on our 3 key strategic growth drivers: delivering a Well Experience, transforming community pharmacy and creating an unprecedented global platform through our Alliance Boots partnership. After that, I'll turn the call over to Wade for a more detailed review of our performance this quarter and key considerations for the rest of fiscal 2013.
Turning to overall financial results. In many respects, this quarter was a turning point for us. To look at our business on an apples-to-apples basis, we have a number of nonoperational items to discuss with you this quarter. The most significant of which is the reporting of results from our investment in Alliance Boots on a 1-quarter reporting lag rather than a 1-month lag period.
While Wade will take you through these accounting impacts in detail later in the call, we want to underscore that we're seeing a strengthening of our core business: first, the increasing pace of return of Express Scripts customers as reflected in the substantial upswing in our comp scripts; second, the improvement in our gross profit margins in the first quarter versus a year ago, primarily due to the impact of generics; third, the significant progress we're making on a number of key initiatives, including our Balance Rewards loyalty program, our flu shot program and other vaccinations and the increased penetration of private brands. Finally, we are pleased with the business performance of our strategic partner, Alliance Boots and are also on track to meet our first year synergy targets with them.
As we initiated last quarter, we'll present our results on both a GAAP and non-GAAP basis. As you saw in our release this morning, we reported first quarter sales of $17.3 billion, down 4.6% from $18.2 billion a year ago. GAAP operating income or EBIT for the quarter was $705 million, down 21.7% compared to $900 million at the same time last year. Adjusted operating income or EBIT for the quarter was $924 million, down 8.1% from just over $1 billion in first quarter 2012. GAAP net earnings for the quarter were $413 million or $0.43 per diluted share compared to $554 million or $0.63 per diluted share last year. Adjusted net earnings for the quarter were $553 million or $0.58 per diluted share compared to adjusted net earnings of $619 million or $0.71 per diluted share in the same quarter last year.
One final note. As you saw this morning, we are adopting a 1-quarter reporting lag for investment in Alliance Boots, which resulted in dilution of $0.07 to adjusted EPS in the first quarter compared with an estimated accretion of $0.03 to adjusted EPS had we used the previously announced 1-month lag. This is intended to align the audit requirements for the investment and more efficiently address regulatory and audit considerations. This does not affect the underlying equity income and synergies we anticipate in the first 12 months since August 2, 2012, when we completed our initial 45% investment in Alliance Boots, but it does impact the quarterly and fiscal year timing in which we report the equity income and a portion of the synergies.
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