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Walgreens hits Q2 adjusted net income, but shares slide on Rite Aid worries

Despite meeting expectations for its fiscal second-quarter net income and earnings per share, shares of drugstore Walgreens Boots Alliance Inc. fell more than 2% on April 5 as the company left investors with questions about its plan to buy rival Rite Aid Corp. and a strong dollar devalued some overseas profits.

Adjusted net income at the Deerfield, Ill.-based retailer was $1.48 billion, higher than the $1.42 billion reported in the same quarter one year earlier and slightly above the S&P Capital IQ consensus estimate of $1.47 billion. Adjusted earnings per share were $1.36, matching the mean consensus estimate of normalized EPS compiled by S&P Capital IQ.

But the company’s stock, which trades on the Nasdaq stock exchange, closed 2.18% lower on the day at $81.17 as executives limited their comments about Walgreens' proposed friendly takeover of Rite Aid. More than 18 months after the company announced it, the deal is still awaiting approval from federal antitrust regulators.

The company reported results before the market opened April 5.

Sales totaled $29.45 billion for the three months ended Feb. 28, below the consensus estimate of $30.17 billion compiled by S&P Capital IQ and lower than the $30.18 billion the company reported for the year-ago quarter.

GAAP net income, meanwhile, was $1.06 billion, higher than the $930 million Walgreens reported for the same quarter in 2016. Diluted earnings per share were 98 cents, well below the Capital IQ consensus estimate of $1.25.

Operating profit was $1.48 billion, lower than the $1.86 billion the company reported for the same quarter last fiscal year.

A strong dollar relative to foreign currencies and "challenging market conditions" in continental Europe weighed on the company's sales, Global CFO and Executive Vice President George Rollo Fairweather said, according to a transcript of an April 5 presentation to analysts.

Foreign forces more than offset a 1.5% growth in the retailer's core U.S. pharmacy sales over the same quarter a year ago. Comparable store sales were also higher than the company's fiscal 2016 second quarter, rising 2.4%.

But what the company said about its sales took a backseat to comments on its proposed $9.7 billion acquisition of Rite Aid.

Asked by analysts about the deal, company executives replied that they were optimistic about getting approval from federal antitrust regulators. There was little new information, however, about the proposed merger, which has been under federal consideration longer than the company had originally planned.

Executive Vice Chairman and CEO Stefano Pessina told analysts that he still believes the company "will bring this deal to a successful conclusion" by the end of July.

"But there is no doubt that the process of getting clearance for the transaction is taking longer than we expected," he said, according to a transcript from S&P Capital IQ.

Walgreens and Rite Aid announced the proposed merger in October 2015, with the intention of completing the transaction within a year. But nearly eight months after that deadline, the Federal Trade Commission has yet to sign off on the deal.

The latest point of contention focuses on an offer from Walgreens to sell up to 1,200 Rite Aid stores to Fred's Inc., a drugstore chain that operates primarily in the southeastern U.S. The FTC could approve the merger if it believes Fred's will become a strong enough competitor to Walgreens as a result of the sale.

The company kept its first-quarter guidance for the rest of its 2017 fiscal year. Adjusted diluted net earnings for the year will fall between $4.90 and $5.08 per share, CFO Fairweather said.

The company also said it would purchase up to $1 billion in stock from shareholders through Dec. 31.