By Antea Gatalica
Shares of Walgreens Boots Alliance Inc. plummeted nearly 11 percent Wednesday following the company’s announcement it will buy smaller rival Rite Aid Corp. for $9.42 billion in cash.
The decline came even as the Deerfield-based company reported quarterly earnings that beat analysts’ expectations.
As a result of store closings and streamlining operations, the company took $382 million in charges and other one-time costs in the quarter ended Aug. 30.
Excluding these costs, Walgreens reported earnings of 88 cents per diluted share, beating the analysts’ consensus estimate of 81 cents per diluted share.
“Walgreens is still struggling and the combination of recent management turnover and continuing profit pressure reflects this fact,” Morningstar analyst Vishnu Lekraj said.
The company has appointed a new CEO, chief information officer, and chief accounting officer just in the past six months.
Additionally, Lekarj said Rite Aid has not invested in its 4,600 stores in recent years and Walgreens Boots Alliance will likely have to make costly store improvements if the acquisition is completed.
Rite Aid faced securities fraud charges in 2002, which resulted in an 8-year prison stint for former CEO Martin Grass.
While management remained quiet on an exact integration plan for Rite Aid, Lekraj said the move is still “moderately positive” for Walgreens, helping to expand the company’s geographic reach and increasing its drug purchasing power.
On a conference call with analysts Wednesday, CEO Stefano Pessina said the company was overall pleased with the progress and performance shown in the latest quarter, the first fiscal year as Walgreens Boots Alliance, which formed in 2014.
“We believe we can shape the future of health care around the world through our ability to bring global solutions to local communities,” Pessina said.
Net sales in the quarter rose 50 percent to $28.5 billion from $19.1 billion in the year-ago period.
Walgreens Boots Alliance swung to a profit of $26 million, or 2 cents per diluted share, compared with a net loss of $221 million, or 23 cents per diluted share, in the year-ago period.
Company shares closed at $84.95 on Wednesday, down $10.21 from Tuesday’s market close.