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Walgreens Boots (WBA) Q2 Earnings Top Estimates, Margins Down

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Walgreens Boots Alliance, Inc. (WBA - Free Report) reported adjusted earnings per share (“EPS”) of $1.40 for second-quarter fiscal 2021, down 7.9% year over year (down 8.2% at constant exchange rate or CER). However, the figure surpassed the Zacks Consensus Estimate by 27.3%.

The adjusted EPS reflects an adverse impact of approximately 40-45 cents due to the pandemic. However, this was partially made up for by Transformational Cost Management Program savings.

Adjusted EPS from continuing operations was $1.26, down from the year-ago figure of $1.41 by 10.6%.

GAAP EPS for second-quarter fiscal 2021 was $1.19, up from the year-ago EPS of $1.07 by 11.2%.

Total Sales

Walgreens Boots recorded total sales of $32.78 billion in fiscal second quarter, up 4.6% year over year and up 3.5% at CER. However, the top line lagged the Zacks Consensus Estimate by 3.2%.

The company stated that despite the pandemic-led business challenges, its top line was boosted by strength in the company’s business arms. Also, accelerated growth in the platform boosted the top line.

Segments in Detail

Following Walgreens Boots’ announcement regarding the sale of the majority its Alliance Healthcare business and a portion of the Retail Pharmacy International segment's businesses in Europe to AmerisourceBergen, the company has reorganized its remaining businesses into two reportable operating segments. The company’s reorganized reporting segments are — United States and International.

United States

The segment’s sales totaled $27.34 billion in fiscal second quarter, highlighting an improvement of 0.4% year over year.

Comparable sales in the quarter increased 2% from the year-ago quarter, reflecting a 4.5% uptick in comparable pharmacy sales and a 3.5% fall in comparable retail sales.

Total prescriptions (adjusted to 30-day equivalents) filled in the second quarter fell 2.8% year over year. In comparable sales, prescriptions filled decreased 1.1% from the year-ago quarter.

Pharmacy sales were up 3% from the year-ago quarter.

Retail sales declined 6.6% (including the impact of the store optimization programs and the 2020 leap day).

Comparable retail sales declined 3.5%, year on year. The soft sales primarily resulted from significantly weaker cough, cold and flu season. Comparable retail sales (excluding tobacco and e-cigarettes) fell 2.7%.


Revenues at the International division surged 32.6% on a year-over-year basis to $5.43 billion, in fiscal second quarter. Sales were up 23.9% at CER, entirely due to the company's new joint venture (“JV”) in Germany, which was consolidated as of November 2020.

However, excluding incremental sales from the JV, International segment’s sales fell 9.9% at CER, primarily due to a 17.8% decrease in Boots UK sales resulting from COVID-19-related impacts.

Boots UK’s comparable retail sales declined 17.9% as footfall in stores remained significantly depressed due to COVID-19, particularly in major high street, train station and airport locations.

Boots UK’s comparable pharmacy sales inched up 3.2%, mainly due to favorable timing on National Health Service reimbursement and stronger pharmacy services. This mitigated the impact of lower prescription volume.


Gross profit in the reported quarter fell 3.4% year over year to $6.78 billion. Gross margin contracted 171 basis points (bps) to 20.7%.

Selling, general and administrative (SG&A) expenses were up 2% year over year to $6.03 billion.

Operating profit in the quarter was $752 million compared with operating income of $1.11 billion a year ago, down 32.2% year over year. Operating margin contracted 125 bps year over year to 2.3%.

Financial Condition

Walgreens Boots exited the second quarter of fiscal 2021 with cash and cash equivalents of $1.03 billion compared with $1.11 billion recorded at the end of the first quarter of fiscal 2021. Total debt was $16.16 billion at the end of the second quarter of fiscal 2021, up from $16.22 billion at the end of the first quarter of fiscal 2021.

Cumulative net cash provided by operating activities at the end of the second quarter of fiscal 2021 was $2.26 billion, up from the year-ago period’s $2.48 billion.

Fiscal 2021 Guidance

Walgreens Boots has raised its estimates of adjusted EPS at CER for fiscal 2021 to mid-to-high single digit growth (earlier growth was projected to be in low single-digits). The Zacks Consensus Estimate for the same is currently pegged at $1.25.

Per the company, the revised guidance is indicative of its performance in the first half of fiscal 2021 which exceeded its expectations and anticipated strong growth in the second half. However, the pandemic-led business uncertainties are likely to persist in the second half.

Our Take

Walgreens Boots exited second-quarter fiscal 2021 with better-than-expected earnings despite pandemic-led business challenges. Impressive performance by both the operating segments buoys optimism. The robust sales of instill investor confidence. Walgreens Boots’ response toward combatting the pandemic — conducting COVID-19 tests at various locations and actively participating in vaccinating residents and staff — is impressive. Faster retail pick-up in the United States, along with acceleration of its investment in VillageMD and boosting the rollout of Village Medical at Walgreens full-service primary care clinics, look encouraging.

Meanwhile, lower-than-expected revenues amid the pandemic-led challenging business environment is concerning. Margin pressure is a major overhang on the stock.

Zacks Rank and Key Picks

Walgreens Boots currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks which are supposed to report earnings soon are Bio-Rad Laboratories, Inc. (BIO - Free Report) , IDEXX Laboratories, Inc. (IDXX - Free Report) and Align Technology, Inc. (ALGN - Free Report) .

The Zacks Consensus Estimate for Bio-Rad’s first-quarter 2021 adjusted EPS is currently pegged at $2.50. The consensus estimate for first-quarter revenues is pegged at $661 million. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

IDEXX currently carries a Zacks Rank #2. The Zacks Consensus Estimate for its first-quarter 2021 adjusted EPS is currently pegged at $1.74. The consensus estimate for first-quarter revenues is pinned at $739.2 million.

Align Technology currently sports a Zacks Rank #1. The Zacks Consensus Estimate for its first-quarter 2021 adjusted EPS is currently pegged at $1.94. The consensus estimate for revenues stands at $806.4 million.

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