We are listening to Q&A.
JPMC: Reimbursement pressure CEO Wentworth: Lessening of pressure in FY25, 80% of the discussions are completed, and 20% of the discussions are ongoing (and Walgreens is ready to take hard decisions). Constructive conversations and willingness to walk away from lines of business or sets of drugs. Discussion of value creation. JPMC: Closures CEO: 500 stores incremental in 2025 (back half) and some already occurred in 2024, helping financials. Q: FCF timing, 2025 is a re-basing year. Is it really 2025, or later? Vendor contracts renegotiations updates - suppliers progress. CEO: Timing: multi-year turn-around, and 2025 is a rebaselining year. Cencora 2029 agreement: meaningful dialog to together improve procurement through distribution and operations. No details provided. Goal is to grow cash flow and AOI in the next three years. 2025 is a better base, with fewer one-timers. FY 2026 the equity benefits from Cencora will be lapped, providing headwinds to comps. Pharmacy margins and US retail sales are the focus for growth, with scale over the next three years. Focus on cost optimization, especially store closing which should be accretive over the year. Deutsche Bank (DB): Store closures impacts, and earnings cadence in US Pharmacy Segment. Store closure benefits of $100M in AOI in 2025. Cash accretive in working capital and owned locations will exceed store closure costs. Cadence will be the same, so no difference between H1 and H2. Q: 80% PBM contract volume renegotiation: is it stable moving forward? FCF in 2025. His model is negative FCF in 2025. CEO: ongoing and dynamic process on these multi-year agreements. Ongoing dynamic to keep 'sitting down' and focusing on improving the business. PBMs operate on a calendar year basis, and the 20% of the remaining contracts need more work by both parties. Adjusted Operating Income to decline: $400M in sale leads-back and Cencora equity. Legal payments of $1.050B in 2025, and lower in 2026. Partially offset headwinds by $500M in working capital. CAPX decline by $150M in 2025. Pragmatic approach to cash management, including monetizing non-strategic assets. Q; US Healthcare: Reduction in investment in Village MD? US Retail strategy is a healthcare strategy. Specialty pharmacy is a growth area and starting point for growth. Shields continues to grow within their partnership. Improvement in Village MD (cost reduction program), and improvement from their risk-based book. Benefit of cost and clinic closures to continue, including contribution margin. Continuation of trends in 2025. UBS: Flow of consumers and overall volumes? Yes...continue to serve consumers. Dividend? Level of the dividend is on the table, and a board decision. Cash flow? Stranded costs? Yes, very committed to cost reduction. Very focused on non-store related cost reduction. This is a corporate culture of cost reduction, so they can invest in the stores. The opportunity for cost reduction is smaller, but still significant. The focus is at the corporate level. The stores are tightly staffed, and there is not a significant opportunity. The people in the stores are the areas of investment, vs. Amazon or mail order pharmacy. Q: US Healthcare side: Monetization and business improvement is complicated. Improvement to the business (margin expansion) apart from cost optimization and store closure. What about the FNG: Jason? Mary has been building a successful team here. Disciplined growth strategy focused on the short-term. They exited non-strategic programs. They are focused on adjacency assets. Reaching and serving patients.
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Stock Market BLOGJeffrey CohenPresident and Investment Advisor Representative Archives
November 2024
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