June 24--Walgreen Co. on Tuesday withdrew its profit goals for its 2016 fiscal year, citing unforeseen pressure in its pharmacy operations and a lack of clarity on the final structure it will take following its expected purchase of European drug giant Alliance Boots GmbH.
The Deerfield-based drugstore chain, the nation's largest, said its board needs more time to settle on the combined management team, future capital structure, and the legal and financial framework for how to complete the transaction.
In a conference call with analysts, Walgreen CEO Greg Wasson said he and the board need 4 to 6 more weeks to work out some of those "complex issues," citing "a lot of moving parts."
Walgreen paid $6.7 billion in 2012 to buy a 45 percent stake in Swiss-based Alliance Boots, with the option to buy the remainder of the company before 2016. Walgreen executives have said they expect to complete the deal as planned.
After it completes the expected takeover, Walgreen is facing increasing shareholder pressure to re-domicile in Europe via a corporate inversion, a maneuver that allows U.S. companies to move its headquarters to a foreign country largely to take advantage of a lower corporate tax rate.
Walgreen executives on Tuesday would not address the issue of inversion specifically, but Chief Financial Officer Wade Miquelon said the company is "looking at everything" that would create long-term value for shareholders.
Aside from requiring more time to hash out the deal structure, Walgreen said it pulled its 2016 projections in part because both companies' financial performance has lagged projections. When Walgreen and Boots announced the deal in 2012, executives had expected the combined company's adjusted operating income in 2016 would be $9 billion to $9.5 billion on revenue of $130 billion.
"We weren't in the last couple of quarters...tracking...to hit those adjusted earnings numbers," Wasson said. "With our current performance, we didn't think that was achievable."
Shares fell $1.87, or 2.5 percent, at $71.86 in midmorning trading, as Walgreen reported quarterly results that fell short of Wall Street expectations.
Walgreen said third quarter net income rose 15.7 percent to $722 million, benefiting from a lower tax rate resulting from increased foreign income.
Revenue rose 5.9 percent to $19.4 billion missing estimates by $80 million.
The retailers said it earned 75 cents a share, up from 65 cents in the same period a year ago.
Adjusted for certain items, earnings per share were 91 cents, missing analysts' estimates by 3 cents.
Sales in stores open at least a year rose 4.8 percent in the quarter, while customer traffic was down 0.7 percent. The average basket size jumped 2.9 percent.
Walgreens stores filled 218 million prescriptions in the quarter, up 4.5 percent over the year-ago period, helping the company to raise its market share to 19 percent, according to IMS Health.
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