Coverage: Walgreens plans to cut $1 billion in annual costs

Walgreens Boots Alliance said Thursday it would launch a “transformational cost management program” designed to save more than $1 billion annually within three years.

Bruce Japsen of Forbes.com had the story:

The moves comes as Walgreens faces pressure from government reimbursements for prescription drugs around the world, particularly in the United Kingdom. The need to reduce costs also comes as Walgreens increases spending on stores and new systems as it renovates and coverts hundreds of Rite Aids it has purchased into Walgreens.

“We have a lot of work to do and there are many moving parts,” Walgreens CEO Stefano Pessina said Thursday morning on an hour-long call with analysts to discuss fiscal 2019 first quarter earnings.

Walgreens said the cost management program is “targeting annual cost savings in excess of $1 billion by the end of the third year.” Executives didn’t provide details of the areas of spending that would be reduced amid a competitive environment for retail pharmacies.

In the U.S., Walgreens faces new threats as well as competition looms from CVS Health and its new relationship from CVS’ acquisition of Aetna, the nation’s third largest health insurer. There is the potential for CVS and Aetna to develop new health insurance products that could shut Walgreens pharmacies out of their networks.

Amelia Lucas and Angelica LaVito of CNBC.com reported that Walgreens’ stock fell on the news:

The results also showed sales are struggling in Britain, one of its largest markets, and the stock dropped 3 percent Thursday morning.

Walgreens shares are down more than 2 percent this year bringing its market value to $69.3 billion. The stock has been under pressure as investors worry about the impact Amazon will have as it expands into the pharmacy business. To prepare for increased competition, Walgreens has announced partnerships with Kroger, Alphabet’s Verily and others.

Investors should expect that transforming the traditional drug store business model will take years, CEO Stefano Pessina said.

“Whether it be three or five [years], it is difficult to say because of these [initiatives] take a lot of time to come to real fruition,” Pessina said on a conference call with analysts.

Brigid Sweeney of Crain’s Chicago Business reported that the company just completed a $1.b billion cut last year:

The new effort, which follows a $1.5 billion cost-cutting initiative that was completed in 2017, is a response to multiple headwinds facing the Deerfield-based pharmacy giant. In addition to the prescription drug reimbursement pressures that have plagued Walgreens for more than a decade, the company must now deal with both Amazon’s entry into the drug business and archrival CVS’ megamerger with Aetna.

Walgreens’ plan includes “divisional optimization initiatives, global smart spending, global smart organization and digitalization of the enterprise to transform long-term capabilities,” Walgreens said in a statement announcing its fiscal first-quarter results.

Activities have begun in areas including the pharmaceutical wholesale division, the retail business in Chile and Mexico, and the Retail Pharmacy USA division, Walgreens said.