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Walgreens Boots' (WBA) Q3 Earnings Miss Estimates, Margins Down
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Walgreens Boots Alliance, Inc. (WBA - Free Report) delivered adjusted earnings per share (EPS) of $1.00 in third-quarter fiscal 2023, increasing 4.2% from the year-ago quarter’s figure (up 3.6% at constant exchange rate or CER). The figure missed the Zacks Consensus Estimate by 5.7%.
GAAP EPS for third-quarter fiscal 2023 was 14 cents compared with the year-ago quarter’s 33 cents, plunging 57.6%.
Total Sales
Walgreens Boots recorded total sales of $35.42 billion in the fiscal third quarter, up 8.6% year over year and 8.9% at CER. The top line also surpassed the Zacks Consensus Estimate by 4.8%.
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 $27.9 billion in the fiscal third quarter, up 4.4% year over year.
Comparable sales increased 7% from the year-ago quarter’s levels. Pharmacy sales were up 6.3% from the year-ago quarter’s figures and comparable pharmacy sales increased 9.8% on the back of branded drug inflation.
Walgreens Boots Alliance, Inc. Price, Consensus and EPS Surprise
Retail sales fell 1% and comparable retail sales were down 0.2% year over year. Comparable retail sales (excluding tobacco and e-cigarettes) rose 0.2% from the prior-year quarter’s figure, led by strong results in grocery & household and beauty categories.
International
Revenues in the International division rose 5% on a year-over-year basis and increased 6.9% at CER to $5.6 billion in the fiscal third quarter.
Boots UK sales rose 10.2% year over year. In Germany, wholesale business sales increased 3.8% in the fiscal third quarter.
Boots UK’s comparable retail sales increased 13.4%. However, Boots UK’s comparable pharmacy sales rose 5.7% year over year.
U.S. Healthcare
U.S. Healthcare reported fiscal third-quarter revenues of $2.0 billion. The metric was up 22% on a pro-forma basis from the year-ago quarter’s combined result. Within the segment, the Shields business rose 35%, driven by recent contract wins, further expansion of existing partnerships and strong execution focus. CareCentrix pro forma sales increased 15% as a result of additional service offerings with existing partners.
Margins
Gross profit for the reported quarter rose 0.3% year over year to $6.59 billion. Gross margin contracted 156 bps to 18.6%.
Selling, general and administrative expenses rose 1.5% year over year to $7.12 billion.
The company reported an adjusted operating loss of $534 billion for the quarter compared with $447 billion in the year-ago period.
Financial Condition
Walgreens Boots exited third-quarter fiscal 2023 with cash and cash equivalents of $871 million compared with $1.09 billion recorded in the second quarter of fiscal 2023. Total debt was $11.90 billion at the end of the fiscal third quarter, up from $11.67 billion at second-quarter fiscal 2023.
Net cash provided by operating activities at the end of third-quarter 2023 was $1.21 million, down from the year-ago period’s $3.81 billion.
The company updated its full-year fiscal 2023 guidance
Adjusted EPS guidance is now expected in the range of $4.00-$4.05 (down from the previous guidance of $4.45-$4.65). The current Zacks Consensus Estimate is pegged at $4.43.
The company expects revenues to be $137.5 billion. The current Zacks Consensus Estimate is pegged at $136.2 billion.
Our Take
Walgreens Boots exited third-quarter fiscal 2023 with better-than-expected revenues and earning miss. The company’s U.S. Healthcare business grew, led by key contract wins, continued partnership growth and a strong focus on execution. During the reported quarter, the company established scalable partnership with TelePharm, part of Cardinal Health's Outcomes business, enabling a tele-pharmacy to expand access and reach more patients in local communities. The company raised the Transformational Cost Management Program target from $3.5 billion to $4.1 billion in cumulative savings by fiscal 2024.
However, Retail sales were impacted by a 90-basis point headwind from holiday seasonal weakness with discretionary spending pullback and an 80-basis point headwind from lower sales of OTC test kits. Escalating costs and contraction of gross margin are a concern. The company has reduced full-year 2023 adjusted EPS guidance, reflecting challenging consumer and macroeconomic conditions and lower COVID-19 vaccine and testing volumes.
Zacks Rank and Upcoming Releases
Walgreens currently carries a Zacks Rank #3 (Hold).
HealthEquity has a 2024 expected earnings growth rate of 35.3%. HQY’s earnings yield of 3.07% compares favorably with the industry’s (3.96%).
Exact Sciences Corporation (EXAS - Free Report) has an Earnings ESP of +1.96% and a Zacks Rank of #2. Exact Sciences is expected to release second-quarter fiscal 2023 results on Aug 1.
Exact Sciences’ Price/Sales ratio of 7.6% compares favorably with the industry’s 7.5%. EXAS has a debt/equity ratio of 0.77 compared with the industry’s 0.00.
Akero Therapeutics Inc. (AKRO - Free Report) currently has an Earnings ESP of +0.40% and a Zacks Rank of #2. AKRO is expected to release second-quarter 2023 results on Aug 3.
AKRO’s arnings yield of (5.51%) compares favorably with the industry’s (32.5%). AKRO’s current ratio of 20.8% compares favorably with the industry’s 5%.
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Walgreens Boots' (WBA) Q3 Earnings Miss Estimates, Margins Down
Walgreens Boots Alliance, Inc. (WBA - Free Report) delivered adjusted earnings per share (EPS) of $1.00 in third-quarter fiscal 2023, increasing 4.2% from the year-ago quarter’s figure (up 3.6% at constant exchange rate or CER). The figure missed the Zacks Consensus Estimate by 5.7%.
GAAP EPS for third-quarter fiscal 2023 was 14 cents compared with the year-ago quarter’s 33 cents, plunging 57.6%.
Total Sales
Walgreens Boots recorded total sales of $35.42 billion in the fiscal third quarter, up 8.6% year over year and 8.9% at CER. The top line also surpassed the Zacks Consensus Estimate by 4.8%.
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 $27.9 billion in the fiscal third quarter, up 4.4% year over year.
Comparable sales increased 7% from the year-ago quarter’s levels.
Pharmacy sales were up 6.3% from the year-ago quarter’s figures and comparable pharmacy sales increased 9.8% on the back of branded drug inflation.
Walgreens Boots Alliance, Inc. Price, Consensus and EPS Surprise
Walgreens Boots Alliance, Inc. price-consensus-eps-surprise-chart | Walgreens Boots Alliance, Inc. Quote
Retail sales fell 1% and comparable retail sales were down 0.2% year over year. Comparable retail sales (excluding tobacco and e-cigarettes) rose 0.2% from the prior-year quarter’s figure, led by strong results in grocery & household and beauty categories.
International
Revenues in the International division rose 5% on a year-over-year basis and increased 6.9% at CER to $5.6 billion in the fiscal third quarter.
Boots UK sales rose 10.2% year over year. In Germany, wholesale business sales increased 3.8% in the fiscal third quarter.
Boots UK’s comparable retail sales increased 13.4%. However, Boots UK’s comparable pharmacy sales rose 5.7% year over year.
U.S. Healthcare
U.S. Healthcare reported fiscal third-quarter revenues of $2.0 billion. The metric was up 22% on a pro-forma basis from the year-ago quarter’s combined result.
Within the segment, the Shields business rose 35%, driven by recent contract wins, further expansion of existing partnerships and strong execution focus. CareCentrix pro forma sales increased 15% as a result of additional service offerings with existing partners.
Margins
Gross profit for the reported quarter rose 0.3% year over year to $6.59 billion. Gross margin contracted 156 bps to 18.6%.
Selling, general and administrative expenses rose 1.5% year over year to $7.12 billion.
The company reported an adjusted operating loss of $534 billion for the quarter compared with $447 billion in the year-ago period.
Financial Condition
Walgreens Boots exited third-quarter fiscal 2023 with cash and cash equivalents of $871 million compared with $1.09 billion recorded in the second quarter of fiscal 2023. Total debt was $11.90 billion at the end of the fiscal third quarter, up from $11.67 billion at second-quarter fiscal 2023.
Net cash provided by operating activities at the end of third-quarter 2023 was $1.21 million, down from the year-ago period’s $3.81 billion.
The company has a five-year annualized dividend growth rate of 2.77%.
Fiscal 2023 Guidance
The company updated its full-year fiscal 2023 guidance
Adjusted EPS guidance is now expected in the range of $4.00-$4.05 (down from the previous guidance of $4.45-$4.65). The current Zacks Consensus Estimate is pegged at $4.43.
The company expects revenues to be $137.5 billion. The current Zacks Consensus Estimate is pegged at $136.2 billion.
Our Take
Walgreens Boots exited third-quarter fiscal 2023 with better-than-expected revenues and earning miss. The company’s U.S. Healthcare business grew, led by key contract wins, continued partnership growth and a strong focus on execution. During the reported quarter, the company established scalable partnership with TelePharm, part of Cardinal Health's Outcomes business, enabling a tele-pharmacy to expand access and reach more patients in local communities. The company raised the Transformational Cost Management Program target from $3.5 billion to $4.1 billion in cumulative savings by fiscal 2024.
However, Retail sales were impacted by a 90-basis point headwind from holiday seasonal weakness with discretionary spending pullback and an 80-basis point headwind from lower sales of OTC test kits. Escalating costs and contraction of gross margin are a concern. The company has reduced full-year 2023 adjusted EPS guidance, reflecting challenging consumer and macroeconomic conditions and lower COVID-19 vaccine and testing volumes.
Zacks Rank and Upcoming Releases
Walgreens currently carries a Zacks Rank #3 (Hold).
HealthEquity (HQY - Free Report) has an Earnings ESP of +4.93% and a Zacks Rank of #1. The company will release third-quarter 2023 results on Sep 5. You can see the complete list of today’s Zacks #1 Rank stocks here.
HealthEquity has a 2024 expected earnings growth rate of 35.3%. HQY’s earnings yield of 3.07% compares favorably with the industry’s (3.96%).
Exact Sciences Corporation (EXAS - Free Report) has an Earnings ESP of +1.96% and a Zacks Rank of #2. Exact Sciences is expected to release second-quarter fiscal 2023 results on Aug 1.
Exact Sciences’ Price/Sales ratio of 7.6% compares favorably with the industry’s 7.5%. EXAS has a debt/equity ratio of 0.77 compared with the industry’s 0.00.
Akero Therapeutics Inc. (AKRO - Free Report) currently has an Earnings ESP of +0.40% and a Zacks Rank of #2. AKRO is expected to release second-quarter 2023 results on Aug 3.
AKRO’s arnings yield of (5.51%) compares favorably with the industry’s (32.5%). AKRO’s current ratio of 20.8% compares favorably with the industry’s 5%.