Quebec's Jean Coutu Group is looking to its neighbouring provinces for smaller-scale acquisitions now that the major drug store players, such as Shoppers Drug Mart, are off the market, says the pharmacy chain's CEO.
But Jean Coutu won't be rushing into any deals, Francois Coutu said on Wednesday, after the company announced plans to return up to $502 million to shareholders by way of a share buyback and a one-time cash dividend of 50 cents per share.
"The big move was made this summer when Loblaw acquired Shoppers," Coutu told financial analysts on a conference call.
"What's left is only minor acquisitions from independents. There aren't many large players anymore," he said, without naming any targets.
Loblaw announced the $12.4-billion takeover of Shoppers Drug Mart in July and plans to keep the brand name and operate as separate division of Loblaw Companies Ltd. (TSX:L).
"I think in the future you will definitely see more opportunities for buying independents," Coutu said. "If it's not this year, we will be patient. I hope our shareholders are, as well, patient."
Analyst John Archer said there are many "niche" and small regional drug store chains to be considered, including in Ontario.
"There are tons of small, independent guys associated with medical offices," said Archer, a senior adviser with the J.C. Williams Group, a retail and marketing consulting firm.
"If you buy enough, there's a bit of cost savings on the supply side," said Archer.
There are also bigger targets. Archer said Jean Coutu could be looking the Canada-wide Rexall drug store chain, owned by Edmonton-based Katz Group of Companies.
In addition, Familiprix is a chain of independent pharmacists in Quebec with branches in the province and in New Brunswick. London Drugs serves British Columbia, Alberta, Saskatchewan and Manitoba. And Lawton's Drugs, in Atlantic Canada, is owned by grocery chain Sobeys (TSX:SBY).
Jean Coutu has sold its remaining stake in U.S. drug store Rite Aid. In 2006, the company sold its U.S. drug store chains Brooks and Eckerd for $1.45 billion in cash and to become a major shareholder in Rite Aid, a leading American drug store chain.
In its second-quarter fiscal 2014 results, the Jean Coutu Group (TSX:PJC.A) reported a big increase in net profit, largely as a result of gains from the investment in U.S. chain Rite Aid.
For the quarter ending Aug. 31, Jean Coutu said net earnings were $208.2 million, or 99 cents per share, including a gain of $158.3 million on the Rite Aid disposal.
That compares with $51.2 million or 23 cents in the same quarter a year ago when no special gains were reported.
Net profit ex-items were $49.9 million or 24 cents per share, about level with year earlier earnings of $50 million or 23 cents, the company said.
That missed, by a penny, the average analyst estimate as compiled by Thomson Reuters. It had called for adjusted earnings of 25 cents per share on revenue of $651.6 million.
Revenue in the latest period totalled $653.8 million, down from $658.7 million.
Poor weather weakened sales in health, beauty and cosmetics in the earlier quarter, with almost $12 million less in sales of suntan products compared with the previous summer, the conference call was told.
Jean Coutu (TSX:PJC) announced, after markets closed Tuesday, that it planned to buy back for cancellation up to 22 million class A subordinate voting shares at $18.50 a share. The stock closed up 26 cents Tuesday at $18.91 on the Toronto Stock Exchange.
The one-time cash dividend would be paid Dec. 2 to all shareholders of record Nov. 25.
The Jean Coutu Group operates a network of 407 franchised stores in Quebec, New Brunswick and Ontario under the banners of PJC Jean Coutu, PJC Clinique, PJC Sante and PJC Sante Beaute.
It also owns Pro Doc Ltd, a Quebec-based subsidiary and manufacturer of generic drugs, along with an investment in Rite Aid Corp., which has more than 4,600 drugstores in 31 states and the District of Columbia.
Shares in Jean Coutu were down 3.7 per cent, or 73 cents, to $18.18 in afternoon trading Thursday on the Toronto Stock Exchange.
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