WALGREENS GET CLOBBERED “..its most difficult quarter since the 2014 merger of Walgreens and Alliance Boots.” By Todd Horwitz, Bubba Trading

 

Walgreens Feels the Pressure

Smaller profit from the sale of generic drugs is squeezing the two biggest U.S. pharmacy chains, with Walgreens Boots Alliance Inc. joining rival CVS Health Corp. in lowering earnings goals for the year.  Walgreens cut its forecast on Tuesday after experiencing what the company described as its most difficult quarter since the 2014 merger of Walgreens and Alliance Boots. Its shares fell 13% on Tuesday, while CVS lost 3.8%, extending a slump dating to late February when the drugstore chain lowered its 2019 profit target.

Walgreens and CVS are getting squeezed as they negotiate with pharmacy-benefit managers. PBMs, as they are known, serve insurers and other clients by choosing which medicines to cover and wresting lower prices from both makers and sellers of drugs. Although CVS owns one of the country’s biggest PBMs, Walgreens doesn’t, leaving it more exposed to pricing demands.

“The pharmacy trends are not only impacting our business,” Walgreens CEO Stefano Pessina said Tuesday on a conference call. “They are impacting the overall market and will likely continue to do so over the coming months.”

The prices that pharmacies like Walgreens pay for generic drugs has been falling, but not as fast as insurers’ reimbursement rates, said Ross Muken, an Evercore ISI analyst. The shrinking gap between the price Walgreens pays and the amount it receives after dispensing the drug is reducing the company’s profit margins, he said.

The company is making several moves as its business deteriorates. It lowered its fiscal 2019 forecast, after reporting second-quarter results that fell short of Wall Street analysts’ estimates. Earnings this year will the flat, the company said, after previously predicting growth of 7 percent to 12 percent.

The Deerfield, Illinois-based company will also expand a cost-cutting plan by about half, from at least $1 billion in annual savings to a targeted $1.5 billion or more by 2022. Walgreens said those savings will come from streamlining operations and digitizing some business functions. Brian Faith, a spokesman for the company, declined to say whether there would be job cuts, or of what size.

Todd “Bubba” Horwitz

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Todd Horwitz - Author of “Average Joe Options“. Todd began his trading career in 1980 at the CBOE. He was one of the original traders in the OEX & helped start the SPX. He is a member the CME where he trades S&P futures as well as foreign currencies & is a regular contributor to CNBC, Bloomberg, BNN, Fox & many other major news networks.