http://www.morningstar.com/earnings/36923137-walgreen-co-wag-q2-2012.aspx

Walgreen Co WAG
Q2 2012 Earnings Call Transcript

Transcript Call Date 03/27/2012

Operator: Good day, and welcome to the Walgreen Company Second Quarter 2012 Earnings Conference Call. At this time, I would like to turn the conference over to your host, Divisional Vice President of Investor Relations, Rick Hans. You may begin.

Rick J. Hans - Divisional VP of IR and Finance: Thank you. Good morning, everyone. Welcome to our second quarter conference call. Today, Greg Wasson, President and CEO; and Wade Miquelon, Executive Vice President and CFO will update you on the quarter. Also joining us on the call and available for questions is Kermit Crawford, President of Pharmacy; and Mark Wagner, President of Community Management.

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 reconciliation. After the call, this presentation and a podcast will be archived on our website for 12 months.

Certain statements and projections of future results made in this presentation constitute forward-looking information that is 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 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 - President and CEO: Thank you, Rick. Good morning, everyone, and thank you for joining us on our call. Today I'll begin with our quarterly results; second, I'll discuss highlights of the quarter and update our progress on our Well at Walgreens strategy to become America’s first choice for health and daily living and then finally I'll provide insight into the second half of the year. And then I’ll turn the call over to Wade for a more detailed analysis.

Beginning with our results today as you saw in our release this morning. We posted record second quarter sales of $18.7 billion up 0.8% from $18.5 billion a year ago. Second quarter earnings per diluted share were $0.78 down 2.5% compared to $0.80 in the year ago quarter. Despite lower earnings cash generation continued to be strong as cash flow from operations for the quarter exceeded $1 billion and free cash flow was $703 million.

We returned $570 million to shareholders in the quarter up 23% over the same quarter last year including $374 million in stock repurchases.

Compared to the prior year the effect of no longer being part of Express Scripts pharmacy network as of January 1, 2012 impacted our results by $0.07 in the quarter and the mild cough cold flu season impacted net earnings to diluted shares by $0.03. This year’s results benefited from one extra day versus last year because of leap year. As we look further into the results even with the impact from Express Scripts the strength in our business fundamentals comes through in our financial highlights.

First our front end comp was up 1.2% this quarter compared to the same quarter last year and excludes the effect of the leap day. We continued to see momentum in our daily living business as a balanced promotional approach during holiday seasons led to profitable sales growth and as we expected, our convenience and our product and services led to higher comp store front-end sales in the quarter despite our reduced pharmacy volume. Secondly, we saw a 31% increase in our volume for a 90-day prescription program. This demonstrates that the true value of our 90-day retail offering is becoming clear. Customers are getting what they want, the convenience to pick up a 90-day supply of the chronic medications after trusted community pharmacy. At the same time, we're reducing cost to payors and helping to improve medication adherence and compliance, which is good for both patients and payors, and finally, as we discussed cash flow and cash returned to shareholders continue to be strong.

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