Walgreen Co. has reported a $239 million loss for the fourth quarter of fiscal year 2014, compared with net earnings of $657 million in the fourth quarter of FY 2013.
Adjusted net earnings in the fourth quarter rose 1.7 percent year-over-year to $714 million. However, the company also experienced an $866 million non-cash loss on its Alliance Boots call option. Walgreen exercised the option early, acquiring the remaining 55 percent ownership interest that the company didn't already possess in Alliance Boots, a European pharmacy chain. Subsequently, the amended option's fair value was reduced.
For the fiscal year ended Aug. 31, Walgreen reported net earnings of $1.93 billion, compared with $2.45 billion in earnings in fiscal year 2013. The news of the fourth-quarter loss and dip in FY 2014 earnings follows an abrupt $1.1 billion cut in the company's pharmacy-unit earnings forecast for fiscal year 2016 the company's then-CFO Wade Miquelon made earlier this year.
In April, Mr. Miquelon projected $8.5 billion in pharmacy earnings before interest and taxes, partly from contracts the company has entered into to dispense medications under the Medicare Part D prescription drug benefit, according to a report from The Wall Street Journal. Pharmacy chains like Walgreen enter into long-term agreements with insurance companies and others that operate Part D plans to dispense various medications for set charges.
However, in July, Mr. Miquelon decreased his forecast by $1.1 billion. He then stepped down in August and has been replaced by Timothy McLevish, a former Kraft executive, according to the report. The company has also announced President of Pharmacy, Health and Wellness Kermit Crawford will retire at the end of the year. Although Mr. Miquelon and Mr. Crawford have said they weren't forced out, sources "familiar with the decision" told the Journal the two executives were pushed to step down.
The Walgreen finance unit failed to factor an increase in drug manufacturers' prices for generic medications into April's projections, according to the report. Walgreen President and CEO Gregory Wasson said in a call with investors earlier this month that the company didn't "fully anticipate" the rise in generic drug prices.