Financial Outcomes Paper: Walgreens
Walgreens Financial Initiatives
Walgreens is a United States based company and the largest drug retail store in the country. The company currently has 8, 300 retail stores in all 50 states as of 2012. The company was founded in 1901 in Chicago, Illinois and currently headquartered in Deerfield (Walgreens.com, Web). As of 2012, Walgreens posted a total revenue of US$71. 633 billion derived from its two operating divisions, the Walgreens Health Services and Walgreens Health and Wellness. The current President and CEO Gregory Wasson were happy to announce the company's revenues composed of US$ 3.464 billion total of operating income and total net income of US$ 2.127 billion (Investing.businessweek.com, 2012, Web). Although, the 2012 sales record appears to be US$ 600 million lower than the previous year, the company still sees growth in the coming 4th quarter of the year.
In the annual Walgreens investor meeting, shareholders were briefed with strategies for growth and creating business value. The Chief Financial officer, Wade Miquelon reviewed the metrics of performance and capital priorities during the meeting. He addressed the shareholders by describing Wallgreen's plans for creating value for their investments. Primarily the long-term goal of the company is to exceed the US$1 billion annual pre-tax savings in three years through “Rewiring for Growth” initiative (News.walgreens.com, 2012, Web). Furthermore, the plan includes advanced the cost-control strategy and introduce productivity be means of introducing “Fuel Well”. This initiative is to build continuous innovative cost reduction and improve the productivity gains by integrating the initiatives to the daily business operations (News.walgreens.com, 2012, Web). Miquelon also envisioned a positive financial outcome for Walgreens through a merger between Express Scripts and Medco. Lastly, another potential financial outcome for the company is the partnership with Alliance Boots, an international pharmacy-led health company.
The aforementioned strategies and business plans are expected to deliver significant financial contributions to Walgreens in the coming years. However, not all of them can deliver potential gains value for the shareholder's investments. The first plan, which is to further develop the cost-control initiatives to deliver US$1 pre-tax savings would only mean very minimal outcome for the company. It is a goal only to increased tax saving, but not necessarily to improve the financial standing of Walgreens. It can be recalled that the company's 3rd quarter sales are not as good as the previous year. Therefore, Walgreens should focus more on improving the trend rather than focusing on tax benefits. Mergers with prescription insurance companies may deliver a more promising financial outcome for the company. The merger would mean increased prescription fills and would significantly increase the in-store sales in terms of more frequent visits for prescription refills. The simple plan of increasing prescription fills by acquiring the leading prescription insurance companies would be a good strategy in terms of sales increase. But acquisitions also means bigger dent to the company's financial because acquisitions would significantly increase the cost of investment and generally impact the shareholder dividends.
However, there is another problem with this merger because in the past couple of years Express Scripts is already making arrangement to acquire Medco Health, but the Federal Trade Commission had not yet made any ruling regarding the proposal. Another problem is the decline in the number of prescriptions filled by Walgreens for Medco customers. Walgreens filled 125 million prescriptions for Medco in 2011, but it decreased to 108 million this year and experts predicted that it would further decline to 74 million next year (Sweeney, 2012, Web). Given that fact, it is apparent that a merger with either of the two prescription insurance companies would not promise a positive financial outcome for the company. The third initiative, which is the partnership with Alliance Boots appears to have more potential because Walgreens is assured of 45% in cash and stock in return for US$6. 7 billion investments.
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