Rite aid cuts forecast; buyout vote looming

Rite Aid is chopping its annual earnings forecast three days before its shareholders vote on whether to approve the sale of the company.

Shares of the nation’s third-largest drugstore chain tumbled 10 percent Monday after the company said generic drug pricing isn’t shaping up how it expected in April when it first made its fiscal 2019 forecast. It reaffirmed that forecast as recently as late June.

The company now expects a range of break-even to an adjusted loss of four cents per share. It had predicted earnings of two cents to six cents per share.

Industry analysts had expected per-share earnings of 2 cents, on average, according to a survey by FactSet.

Rite Aid said it changed its outlook after realizing that reductions in the cost of generic drugs are coming in about $80 million lower than the company expected when it established its fiscal 2019 forecast.

Generic drugs are cheaper copycats of older, branded pharmaceuticals, and they make up most of a drugstore’s prescription volume.

Price deflation for generics has allowed drugstores to buy the drugs at cheaper and cheaper rates each year, but that has slowed, said Jeff Jonas, an analyst who follows drugstores for Gabelli Funds.

Jonas said Rite Aid’s guidance cut also appears to be an attempt to build support for a bid by the privately held grocer Albertsons Companies to acquire the drugstore chain.

Albertsons announced in February a plan to buy Rite Aid’s more than 2,500 drugstores. The grocer offered either a share of its stock and $1.83 in cash or slightly more than one Albertsons share for every 10 Rite Aid shares.

Two prominent advisory firms — Institutional Shareholder Services and Glass Lewis & Co. — and a big shareholder are urging stock owners to reject the offer in a vote to be held Thursday. Deal opponents have questioned the price and also whether Rite Aid would be better off remaining a stand-alone company.

Rite Aid, based in Camp Hill, Pennsylvania, has struggled with high debt levels and tough competition from larger rivals. The company has said the Albertsons deal will help it build scale, diversify and improve its financial strength.