Jean Coutu Group (PJC) Inc. says it plans to distribute up to $502-million to shareholders through a share buyback program as well as a one-time dividend of 50 cents.
The drugstore giant said it intends to buy back up to 22 million class A subordinate voting shares at $18.50 per share in addition to the 50-cent per class A and B share dividend following the sale of its equity stake in U.S. pharmacy chain Rite Aid Corp. and given its strong cash flow from operations.
Longueuil, Que.-based Coutu also said on Wednesday that it posted net profit of $49.9-million or 24 cents per share in the second quarter of fiscal 2014, compared with $50-million or 23 cents per share in the year-earlier period.
The 24-cents EPS missed analysts' consensus estimate of 25 cents.
Coutu said an increase in the number of generic drug prescriptions with lower selling prices than those for brand-name drugs hurt second-quarter retail sales.
The introduction of new generic drugs reduced pharmacy retail sales growth by 2.2 per cent and generic-drug price reductions trimmed the growth of those sales by 1.1 per cent, it said.
In the second quarter, 67.2 per cent of prescriptions were for generics, up from 61 per cent for the comparable period a year earlier, the company said.
Coutu and other drugstore chains are feeling growing pressure on their profit margins as a result of government-imposed price controls on generic drugs.
Including extraordinary items, net profit in the second quarter was $208.2-million or 99 cents – due mostly to gains of $158.3-million related to the Rite Aid investment -- compared with $51.2-million or 23 cents.
Revenue in the second quarter was $653.8-million, down from $658.7-million in the year-earlier period.
Coutu president and chief executive officer François Coutu said on a conference call Wednesday that the company continues to look for acquisition opportunities but that any deals would likely be more for independents than for entire chains or segments of chains.
The impact of generic drug reform on the more vulnerable independent players should help shake out some potential acquisition targets but there has not been much fallout so far, said Mr. Coutu.
"The dust hasn't settled yet. We'll be patient. I hope our shareholders as well are patient," he said.
The company said that philanthropic organization Fondation Marcelle et Jean Coutu plans to deposit 21 million shares for repurchase under the company's buyback offer.
The foundation is a trust controlled by Coutu founder Jean Coutu and his family.
The number of shares Coutu will ultimately purchase from the trust will depend on the number of shares deposited to Coutu's offer by other shareholders, the company said.
Pharmacy chains are under the gun to consolidate as the retail sector in Canada becomes more challenging with the entry into Canada of U.S. giants like Target Corp. and mergers such as that of Loblaw Cos. Ltd. with Shoppers Drug Mart.
"Jean Coutu does not have any outstanding debt and we believe that this distribution of capital demonstrates our commitment to our shareholders without constraining our growth plan for the corporation," Mr. Coutu said in a news release.
The company said the buyback offer expires Nov. 14, 2013 and that the special dividend will be paid on Dec. 2, 2013.
Coutu operates 411 franchised stores, mostly located in Quebec.