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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 $1.16 in second-quarter fiscal 2023, down 27.2% year over year (declining 25.8% at a constant-exchange rate or CER). The figure topped the Zacks Consensus Estimate by 5.5%.
GAAP EPS in second-quarter fiscal 2023 was $0.81 compared with the year-ago quarter’s earnings of $1.02, falling 20.3%.
Total Sales
Walgreens Boots recorded total sales of $34.86 billion in the fiscal second quarter, up 3.3% year over year and up 4.5% at CER. The top line surpassed the Zacks Consensus Estimate by 4.2%.
Quarterly Details
The company divided its business into three reportable segments — the United States, International and Walgreens Health — at the start of the fiscal year. During the fiscal Q4 announcement, Walgreens Boots stated that it had changed the names of two reportable segments to better align with its business activities, structure, and strategy. The United States segment has changed to U.S. Retail Pharmacy and the Walgreens Health segment has been renamed to U.S. Healthcare.
U.S. Retail Pharmacy
The segment’s sales totaled $27.6 billion for the fiscal second quarter, representing a decline of 0.3% year over year.
Comparable sales increased 3.1% from the year-ago quarter’s levels.
Pharmacy sales were up 0.3% from the year-ago quarter’s figures, affected by a 3.5% point headwind from the AllianceRx Walgreens business.
Retail sales fell 1.8% and comparable retail sales were down 1% year over year. Comparable retail sales (excluding tobacco and e-cigarettes) also fell 0.5% from the prior-year quarter.
International
Revenues in the International division rose 1.6% on a year-over-year basis and increased 9% at CER to $5.7 billion in the fiscal second quarter.
Walgreens Boots Alliance, Inc. Price, Consensus and EPS Surprise
Boots UK sales rose 11% year over year. In Germany, wholesale business sales increased 7.5% in the fiscal second quarter.
Boots UK’s comparable retail sales increased 16%. However, Boots UK’s comparable pharmacy sales rose 2% year over year, primarily due to lower demand for COVID-19 services.
U.S. Healthcare
U.S. Healthcare reported fiscal second-quarter revenues of $1.6 billion. This was up 30% on a pro-forma basis versus the year-ago quarter’s combined result.
Within the segment, the Shields business rose 41%, driven by recent contract wins, further expansion of existing partnerships and strong execution focus. VillageMD increased 30% owing to existing clinic growth and footprint expansion. CareCentrix grew 25% as a result of additional service offerings with existing partners.
Margins
Gross profit for the reported quarter fell 8.5% year over year to $7.01 billion. Gross margin contracted 260 bps to 20.2%.
Selling, general and administrative expenses rose 5.6% year over year to $6.93 billion.
The company reported an adjusted operating profit of $0.1 billion for the quarter under review compared to $1.1 billion of operating profit in the year-ago period. Adjusted operating margin contracted 304-bps to 0.3%.
Financial Condition
Walgreens Boots exited second-quarter fiscal 2023 with cash and cash equivalents of $1.09 billion compared with $2.35 billion recorded in the first quarter of fiscal 2023. Total debt was $13.04 billion at the end of the fiscal second quarter, up from $11.72 billion at first-quarter fiscal 2023.
Net cash provided by operating activities at the end of second-quarter 2023 was $1.24 million, down from the year-ago period’s $2.18 billion.
The company reinstated its full-year fiscal 2023 guidance
Adjusted EPS guidance is expected in the range of $4.45 to $4.65. The current Zacks Consensus Estimate is pegged at $4.57.
The company expects revenue to be $137.5 billion. The current Zacks Consensus Estimate is pegged at $134.6 billion.
Our Take
Walgreens Boots exited second-quarter fiscal 2023 with better-than-expected earnings and revenues. The company’s U.S. Healthcare business grew, led by key contract wins, continued partnership growth and a strong focus on execution. The company continues to play a leading role in COVID-19 vaccinations and testing, administering 2.4 million vaccinations in the reported quarter. Moreover, the company has reinstated 2023 eps guidance, reflecting continued growth momentum.
However, Pharmacy sales were affected by a 3.5% point headwind from AllianceRx Walgreens. International segment was also impacted by an adverse currency impact of 7.5%in the second quarter. Escalating costs and contraction of gross margin remain a concern.
Zacks Rank and Upcoming Releases
Walgreens currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space are Hologic, Inc. (HOLX - Free Report) , Henry Schein, Inc. (HSIC - Free Report) and Avanos Medical, Inc. (AVNS - Free Report) .
Hologic, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 15.2%. HOLX’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 30.6%.
Hologic has gained 1.7% against the industry’s 17.5% growth in the past year.
Henry Schein, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 8.1%. HSIC’s earnings surpassed estimates in three of the trailing four quarters and matched the same in the other, the average beat being 2.9%.
Henry Schein has lost 12.4% compared with the industry’s 10.9% decline in the past year.
Avanos, carrying a Zacks Rank #2 at present, has an estimated growth rate of 1.8% for 2023. AVNS’ earnings surpassed estimates in all the trailing four quarters, the average beat being 11%.
Avanos has lost 13.7% compared with the industry’s 17.5% decline in the past year.
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Walgreens Boots (WBA) Q2 Earnings Top Estimates, Margins Down
Walgreens Boots Alliance, Inc. (WBA - Free Report) reported adjusted earnings per share (EPS) of $1.16 in second-quarter fiscal 2023, down 27.2% year over year (declining 25.8% at a constant-exchange rate or CER). The figure topped the Zacks Consensus Estimate by 5.5%.
GAAP EPS in second-quarter fiscal 2023 was $0.81 compared with the year-ago quarter’s earnings of $1.02, falling 20.3%.
Total Sales
Walgreens Boots recorded total sales of $34.86 billion in the fiscal second quarter, up 3.3% year over year and up 4.5% at CER. The top line surpassed the Zacks Consensus Estimate by 4.2%.
Quarterly Details
The company divided its business into three reportable segments — the United States, International and Walgreens Health — at the start of the fiscal year. During the fiscal Q4 announcement, Walgreens Boots stated that it had changed the names of two reportable segments to better align with its business activities, structure, and strategy. The United States segment has changed to U.S. Retail Pharmacy and the Walgreens Health segment has been renamed to U.S. Healthcare.
U.S. Retail Pharmacy
The segment’s sales totaled $27.6 billion for the fiscal second quarter, representing a decline of 0.3% year over year.
Comparable sales increased 3.1% from the year-ago quarter’s levels.
Pharmacy sales were up 0.3% from the year-ago quarter’s figures, affected by a 3.5% point headwind from the AllianceRx Walgreens business.
Retail sales fell 1.8% and comparable retail sales were down 1% year over year. Comparable retail sales (excluding tobacco and e-cigarettes) also fell 0.5% from the prior-year quarter.
International
Revenues in the International division rose 1.6% on a year-over-year basis and increased 9% at CER to $5.7 billion in the fiscal second quarter.
Walgreens Boots Alliance, Inc. Price, Consensus and EPS Surprise
Walgreens Boots Alliance, Inc. price-consensus-eps-surprise-chart | Walgreens Boots Alliance, Inc. Quote
Boots UK sales rose 11% year over year. In Germany, wholesale business sales increased 7.5% in the fiscal second quarter.
Boots UK’s comparable retail sales increased 16%. However, Boots UK’s comparable pharmacy sales rose 2% year over year, primarily due to lower demand for COVID-19 services.
U.S. Healthcare
U.S. Healthcare reported fiscal second-quarter revenues of $1.6 billion. This was up 30% on a pro-forma basis versus the year-ago quarter’s combined result.
Within the segment, the Shields business rose 41%, driven by recent contract wins, further expansion of existing partnerships and strong execution focus. VillageMD increased 30% owing to existing clinic growth and footprint expansion. CareCentrix grew 25% as a result of additional service offerings with existing partners.
Margins
Gross profit for the reported quarter fell 8.5% year over year to $7.01 billion. Gross margin contracted 260 bps to 20.2%.
Selling, general and administrative expenses rose 5.6% year over year to $6.93 billion.
The company reported an adjusted operating profit of $0.1 billion for the quarter under review compared to $1.1 billion of operating profit in the year-ago period. Adjusted operating margin contracted 304-bps to 0.3%.
Financial Condition
Walgreens Boots exited second-quarter fiscal 2023 with cash and cash equivalents of $1.09 billion compared with $2.35 billion recorded in the first quarter of fiscal 2023. Total debt was $13.04 billion at the end of the fiscal second quarter, up from $11.72 billion at first-quarter fiscal 2023.
Net cash provided by operating activities at the end of second-quarter 2023 was $1.24 million, down from the year-ago period’s $2.18 billion.
The company has a five-year annualized dividend growth rate of 3.31%.
Fiscal 2023 Guidance
The company reinstated its full-year fiscal 2023 guidance
Adjusted EPS guidance is expected in the range of $4.45 to $4.65. The current Zacks Consensus Estimate is pegged at $4.57.
The company expects revenue to be $137.5 billion. The current Zacks Consensus Estimate is pegged at $134.6 billion.
Our Take
Walgreens Boots exited second-quarter fiscal 2023 with better-than-expected earnings and revenues. The company’s U.S. Healthcare business grew, led by key contract wins, continued partnership growth and a strong focus on execution. The company continues to play a leading role in COVID-19 vaccinations and testing, administering 2.4 million vaccinations in the reported quarter. Moreover, the company has reinstated 2023 eps guidance, reflecting continued growth momentum.
However, Pharmacy sales were affected by a 3.5% point headwind from AllianceRx Walgreens. International segment was also impacted by an adverse currency impact of 7.5%in the second quarter. Escalating costs and contraction of gross margin remain a concern.
Zacks Rank and Upcoming Releases
Walgreens currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space are Hologic, Inc. (HOLX - Free Report) , Henry Schein, Inc. (HSIC - Free Report) and Avanos Medical, Inc. (AVNS - Free Report) .
Hologic, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 15.2%. HOLX’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 30.6%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Hologic has gained 1.7% against the industry’s 17.5% growth in the past year.
Henry Schein, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 8.1%. HSIC’s earnings surpassed estimates in three of the trailing four quarters and matched the same in the other, the average beat being 2.9%.
Henry Schein has lost 12.4% compared with the industry’s 10.9% decline in the past year.
Avanos, carrying a Zacks Rank #2 at present, has an estimated growth rate of 1.8% for 2023. AVNS’ earnings surpassed estimates in all the trailing four quarters, the average beat being 11%.
Avanos has lost 13.7% compared with the industry’s 17.5% decline in the past year.