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Walgreens Boots Alliance, Inc. (WBA - Free Report) reported adjusted earnings per share (EPS) of $1.10 in first-quarter fiscal 2017, up 6.8% from the year-ago quarter. Adjusted EPS also beat the Zacks Consensus Estimate slightly by 0.9%.
On a reported basis, net earnings came in at $1.05 billion, a decrease of 5.0% from $1.11 billion in the prior-year quarter. Reported earnings per share came in at 97 cents, reflecting a fall of 4.0% year over year.
Total Sales
Walgreens Boots recorded total sales of $28.50 billion in the fiscal first quarter, down 1.8% year over year and up 1.1% at constant exchange rate (CER). However, the top line missed the Zacks Consensus Estimate of $29.37 billion.
Following the earnings release, share prices dropped 0.10% during pre-market trading session.
Walgreens Boots currently reports under three operating segments: Retail Pharmacy USA, Retail Pharmacy International and Pharmaceutical Wholesale.
The Retail Pharmacy USA division delivered sales of $20.65 billion in the reported quarter, reflecting an increase of 1.4% on a year-over-year basis. Within this segment, total sales in comparable drugstores inched up 1.1%, while prescriptions filled in comparable stores grew 3.4% on account of consistent growth in Medicare Part D volumes. On the other hand, comparable retail stores edged down 0.5% due to lower sales of consumables and general merchandise category and in the personal care category; partially offset by higher sales in the health and wellness and beauty categories.
Pharmacy sales, which accounted for 69.1% of the division’s sales in the quarter, increased 2.5% from the year-ago quarter, while pharmacy sales in comparable stores increased 2%.
Revenues from the Retail Pharmacy International division declined 14.4% on a year-over-year basis (up 0.5% at CER) to $2.96 billion, on account of currency fluctuations. At CER, comparable store sales in the first quarter decreased 0.1% year over year, while comparable pharmacy sales fell 0.5% at CER due to a reduction in government pharmacy funding in the UK, which was partially offset by growth in other international markets.
The Pharmaceutical Wholesale division recorded quarterly sales of $5.41 billion, down 6.5%. At CER, excluding acquisitions and dispositions, comparable store sales improved 4.7%.
Margins
Gross profit decreased 4.1% year over year to $7.11 billion. Reported gross margin contracted 59 basis points (bps) to $24.97 million.
Selling, general and administrative (SG&A) expenses contracted 4.5% to $5.68 billion. Adjusted operating income also decreased 2.6% to $1.43 billion owing to significantly lower gross profits. Accordingly, adjusted operating margin contracted 4 bps to 5.01%.
Financial Condition
Walgreens Boots exited the fiscal first quarter with cash and cash equivalents of $9.59 billion, compared with $9.80 billion at the end of fiscal 2016. Long-term debt was $17.77 billion, compared with $18.70 billion at the end of fiscal 2016.
Moreover, the company generated operating cash flow of $525 million in the fiscal first quarter compared with $732 million a year ago. The resultant free cash flow was $147 million in the reported quarter as compared to $392 million in the year-ago quarter.
Guidance
Walgreens Boots has raised the lower end of its guidance for fiscal year 2017 by 5 cents per share and anticipates adjusted EPS in the range of $4.90–$5.20. The Zacks Consensus Estimate of $5.04 remains within the guided range.
This guidance assumes 5–12 cents of accretion from the impending Rite Aid Corporation (RAD) acquisition and is also based on the expected store divestitures and timing of closing of the acquisition. Additionally, this guidance assumes current exchange rates for the rest of the fiscal year 2017 and continuation of its normal anti-dilutive share buyback program.
Progress on Rite Aid Acquisition
Walgreens Boots is engaged in discussions with the Federal Trade Commission (FTC), regarding its pending acquisition of Rite Aid Corporation. The company is working toward closing the acquisition in early part of 2017. Earlier in Dec 2016, Walgreens Boots and Rite Aid had entered into an agreement to sell 865 Rite Aid stores and certain assets related to store operations to Fred’s, Inc., for $950 million in an all-cash transaction.
Notably, in Oct 2015, Walgreens Boots had declared an agreement to acquire the U.S.-based retail pharmacy chain – Rite Aid – for a total enterprise value of $17.2 billion, including acquired net debt.
Our Take
Walgreens Boots reported a mixed first-quarter fiscal 2017, with earnings marginally beating the Zacks Consensus Estimate and sales missing the mark. Management continues to anticipate that growth in the second half of fiscal 2017 will reflect the new strategic pharmacy partnerships announced in 2016. On the flip side, the company has raised the lower end of its 2017 EPS guidance, thus narrowing the range. The company’s decrease in quarterly sales also adds to our concerns.
Nevertheless, in the last three months Walgreens Boots has consistently outperformed the Zacks classified Retail - Drug Stores industry trend with respect to price performance. The stock, till now, has gained 3.3%, way better than the 3.0% decline of the industry trend.
Zacks Rank & Key Picks
Walgreens Boots carries a Zacks Rank #3 (Hold). Better-ranked medical stocks are ICU Medical Inc. (ICUI - Free Report) , Align Technology, Inc. (ALGN - Free Report) and Haemonetics Corporation (HAE - Free Report) . ICU Medical and Align Technology sport a Zacks Rank #1 (Strong Buy), while Haemonetics carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
ICU Medical gained 36.9% over the last one year compared with the S&P 500’s 14.1%. The company has a four-quarter average positive earnings surprise of 46.3%.
Align Technology rallied 50.7% in the past one year, way better than the S&P 500. It has a trailing four-quarter average positive earnings surprise of 23%.
Haemonetics recorded a 27.8% gain over the past one year, better than the S&P 500. It has a trailing four-quarter average positive earnings surprise of 0.82%.
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Walgreens Boots (WBA) Beats Q1 Earnings, Trims EPS View
Walgreens Boots Alliance, Inc. (WBA - Free Report) reported adjusted earnings per share (EPS) of $1.10 in first-quarter fiscal 2017, up 6.8% from the year-ago quarter. Adjusted EPS also beat the Zacks Consensus Estimate slightly by 0.9%.
On a reported basis, net earnings came in at $1.05 billion, a decrease of 5.0% from $1.11 billion in the prior-year quarter. Reported earnings per share came in at 97 cents, reflecting a fall of 4.0% year over year.
Total Sales
Walgreens Boots recorded total sales of $28.50 billion in the fiscal first quarter, down 1.8% year over year and up 1.1% at constant exchange rate (CER). However, the top line missed the Zacks Consensus Estimate of $29.37 billion.
Following the earnings release, share prices dropped 0.10% during pre-market trading session.
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WALGREENS BAI Price, Consensus and EPS Surprise | WALGREENS BAI Quote
Segments in Detail
Walgreens Boots currently reports under three operating segments: Retail Pharmacy USA, Retail Pharmacy International and Pharmaceutical Wholesale.
The Retail Pharmacy USA division delivered sales of $20.65 billion in the reported quarter, reflecting an increase of 1.4% on a year-over-year basis. Within this segment, total sales in comparable drugstores inched up 1.1%, while prescriptions filled in comparable stores grew 3.4% on account of consistent growth in Medicare Part D volumes. On the other hand, comparable retail stores edged down 0.5% due to lower sales of consumables and general merchandise category and in the personal care category; partially offset by higher sales in the health and wellness and beauty categories.
Pharmacy sales, which accounted for 69.1% of the division’s sales in the quarter, increased 2.5% from the year-ago quarter, while pharmacy sales in comparable stores increased 2%.
Revenues from the Retail Pharmacy International division declined 14.4% on a year-over-year basis (up 0.5% at CER) to $2.96 billion, on account of currency fluctuations. At CER, comparable store sales in the first quarter decreased 0.1% year over year, while comparable pharmacy sales fell 0.5% at CER due to a reduction in government pharmacy funding in the UK, which was partially offset by growth in other international markets.
The Pharmaceutical Wholesale division recorded quarterly sales of $5.41 billion, down 6.5%. At CER, excluding acquisitions and dispositions, comparable store sales improved 4.7%.
Margins
Gross profit decreased 4.1% year over year to $7.11 billion. Reported gross margin contracted 59 basis points (bps) to $24.97 million.
Selling, general and administrative (SG&A) expenses contracted 4.5% to $5.68 billion. Adjusted operating income also decreased 2.6% to $1.43 billion owing to significantly lower gross profits. Accordingly, adjusted operating margin contracted 4 bps to 5.01%.
Financial Condition
Walgreens Boots exited the fiscal first quarter with cash and cash equivalents of $9.59 billion, compared with $9.80 billion at the end of fiscal 2016. Long-term debt was $17.77 billion, compared with $18.70 billion at the end of fiscal 2016.
Moreover, the company generated operating cash flow of $525 million in the fiscal first quarter compared with $732 million a year ago. The resultant free cash flow was $147 million in the reported quarter as compared to $392 million in the year-ago quarter.
Guidance
Walgreens Boots has raised the lower end of its guidance for fiscal year 2017 by 5 cents per share and anticipates adjusted EPS in the range of $4.90–$5.20. The Zacks Consensus Estimate of $5.04 remains within the guided range.
This guidance assumes 5–12 cents of accretion from the impending Rite Aid Corporation (RAD) acquisition and is also based on the expected store divestitures and timing of closing of the acquisition. Additionally, this guidance assumes current exchange rates for the rest of the fiscal year 2017 and continuation of its normal anti-dilutive share buyback program.
Progress on Rite Aid Acquisition
Walgreens Boots is engaged in discussions with the Federal Trade Commission (FTC), regarding its pending acquisition of Rite Aid Corporation. The company is working toward closing the acquisition in early part of 2017. Earlier in Dec 2016, Walgreens Boots and Rite Aid had entered into an agreement to sell 865 Rite Aid stores and certain assets related to store operations to Fred’s, Inc., for $950 million in an all-cash transaction.
Notably, in Oct 2015, Walgreens Boots had declared an agreement to acquire the U.S.-based retail pharmacy chain – Rite Aid – for a total enterprise value of $17.2 billion, including acquired net debt.
Our Take
Walgreens Boots reported a mixed first-quarter fiscal 2017, with earnings marginally beating the Zacks Consensus Estimate and sales missing the mark. Management continues to anticipate that growth in the second half of fiscal 2017 will reflect the new strategic pharmacy partnerships announced in 2016. On the flip side, the company has raised the lower end of its 2017 EPS guidance, thus narrowing the range. The company’s decrease in quarterly sales also adds to our concerns.
Nevertheless, in the last three months Walgreens Boots has consistently outperformed the Zacks classified Retail - Drug Stores industry trend with respect to price performance. The stock, till now, has gained 3.3%, way better than the 3.0% decline of the industry trend.
Zacks Rank & Key Picks
Walgreens Boots carries a Zacks Rank #3 (Hold). Better-ranked medical stocks are ICU Medical Inc. (ICUI - Free Report) , Align Technology, Inc. (ALGN - Free Report) and Haemonetics Corporation (HAE - Free Report) . ICU Medical and Align Technology sport a Zacks Rank #1 (Strong Buy), while Haemonetics carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
ICU Medical gained 36.9% over the last one year compared with the S&P 500’s 14.1%. The company has a four-quarter average positive earnings surprise of 46.3%.
Align Technology rallied 50.7% in the past one year, way better than the S&P 500. It has a trailing four-quarter average positive earnings surprise of 23%.
Haemonetics recorded a 27.8% gain over the past one year, better than the S&P 500. It has a trailing four-quarter average positive earnings surprise of 0.82%.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>