Walgreen Company Earnings Call Nuggets: New JV and Price vs Promotion

Walgreen Company (NYSE:WAG) recently reported its third quarter earnings and discussed the following topics in its earnings conference call.

New JV

Lisa Gill – JPMorgan: I just had a couple of questions on the generic side. So, Wade, I heard you talk about the $125 million to $150 million of synergies. Can you talk about where you are in this new JV purchasing as far as contracting with the manufacturers and how much of the synergies are coming from that side would be my first question? And then secondly, I think, Greg you talked about market pressure and reimbursement, but on the other hand, you also talked about long-term contracts where are you seeing the market pressure on reimbursement today is that coming from Medicaid, is it coming from the commercial market, how should we think about that.

Wade D. Miquelon – CFO: So I’ll answer the JV first. The JV is up and fully running and operating. We have two (presence) Jeff Berkowitz and (John Donovan) who are working – one of the key work streams that’s residing there are generics and we are off to a very good start without giving information that we consider too competitively sensitive I guess but I would say is that given the scope and breadth of what we are doing together. I think we are working with most of the key manufacturers already in terms of understanding how we can bring volume benefit to better long term planning and I say real win-win. I think that win-win comes just again because of the size and scale and the breadth of the business that we can do with all the key partners that want to partner with us. But we are off to good start. It is a significant part of our early synergies and as I said before we expect it to be a significant part of the growing ones as well. And Greg may be you should comment on…

Gregory D. Wasson – President and CEO: On the amount of pressure on reimbursement I guess I don’t think that there is any one segment that we are seeing I think we are seeing reasonable reimbursement pressure and focus from any payer whether it is government commercial on control and cost. I think certainly as Medicaid at some stage has moved from state Medicaid to managed Medicaid and certainly see some movement there. But when we look at those commercial arrangements as we have in the past, we look at the individual brand and we look at all the variables whether it’s days of supply generic utilizations rate and make our decisions. But I don’t think that there is any one area that we would call out I think that we are just seeing continued as expected focus on healthcare costs from all payers…

Lisa Gill – JPMorgan: Greg, just to follow-up on that really quickly on Medicaid if we think about the initial impact of the Affordable Care Act we would expect it is primarily going to come from Medicaid expansion, can you talk about if that’s primarily where it comes from, do you have excess capacity in your stores today so that even if the reimbursement rate is a little bit lower with Medicaid that you’re going to be able to lever that incremental volume and it should be still a positive as we move into calendar ’14 for Walgreens.

Gregory D. Wasson – President and CEO: Well, Lisa, I don’t know if I really take it down to variable labor perspective, but I think with movement from growing Medicaid whether it’s managed or state, again I think that we look at that as we have any commercial arrangement in some of those it depends on the market share in the states that we’re in, it depends on as I said earlier lot of these with more and more folks coming into Medicaid population that are conducive to say 90 day supplies of chronic medications. There is opportunities for us to work with states in ways we have in the past, there is ways to work with and to drive adherence. So, I don’t think that it’s really whether we have the capacity to make it work, I think it’s really focusing on the reimbursement of value we bring to begin with.

Wade D. Miquelon – CFO: Yes, Lisa, one last thing I would say is bundling the two together, apart from making sure that we have the most effective cost buying structure with respect to things that are happening that we’re doing like driving 90 day which I think you can see is really accelerating in terms of some of the automation that’s happening with respect to our stores and streamlining of the process as well as things like ePrescribe. We’ll continue to find ways to be more efficient and effective on all aspects of cost which will allow us to pay more, play more broadly in expansion of healthcare and beyond.

Price vs Promotion

Tom Gallucci – Lazard Capital Markets: I guess my first question was just sort of on the front end, you mentioned some of the pricing and promotional strategy that you’re sort of adjusting, can you remind us what you’re doing there and sort of the impact that we should see that you’ve mentioned on the call, sort of, gross profit dollars versus gross profit margins?

Gregory D. Wasson – President and CEO: Certainly we’re focused on, as we’ve said several times, on gross profit dollars versus margin, and I think what we’re beginning to do and we talked a little bit probably on last call is trying to strike the right balance between price and promotion. I think as we talked about, we made a strategic shift when we rolled out our Balance Rewards program to shift some of our promotional effort and focus from (indiscernible), primarily our print circular, to more digital and Balance Rewards. I think, that absolutely was the right strategic move for us to make. Along the way I think we probably get a little less promotional in that Sunday circular. So what we’re doing is we’re really focused, based on some of the data that we’re getting, the insights from our Balance Rewards program to make sure we’ve got the right items at the right price in that circular to drive comp and traffic. This is something you want to tweak that dial ever so slightly, and we feel that we’re making the right adjustments and we’re beginning to gain some momentum. We want to continue to do that in our Sunday circular and utilize our Balance Rewards program to continue to move that in the right direction.

Tom Gallucci – Lazard Capital Markets: My other question was on the pharmacy side, with respect to specialty, not so much in the quarter, but obviously all we hear from payors out there is troubles at the specialty trend that are only going to get worse over time. So, can you just update us on your latest initiatives on the specialty side, so your growth expectations and maybe some of the unique things that you think you are doing in the market place in that area?

Gregory D. Wasson – President and CEO: I think that we have a great position to begin to provide more value to both patients, payors and pharmaceutical companies as we go forward. We think that our differentiating model allows us to focus on what we’d call specialty and retail to make sure that patients are indeed eligible to pick up and receive specialty medications from their retail pharmacists that they’ve been using for years. AmerisourceBergen, the relationship we have with daily deliveries will help us drive that even greater. We have a central facility that will allow us to either mail to stores or mail directly to the patient’s home based on where they’d like it. We’re really driving sophistication there. Finally, our infusion business, we think, is truly differentiated for us, because as more payers look for a single solution for the pipeline of drugs that are coming out that are either going to be injectable or infused, we think that looking for a one-stop solution that we can offer will help us win in a marketplace. We’re working with – the last thing I’d say is Jeff Berkowitz and our team is focused on bringing solutions to the pharmaceutical partners we have are really working with them in ways to help them launch and drive the value that they’re looking for with our specialty products

A Closer Look: Walgreen Company Earnings Cheat Sheet>>