Back to top

Image: Bigstock

Why Is Walgreens (WBA) Up 6% Since Last Earnings Report?

Read MoreHide Full Article

A month has gone by since the last earnings report for Walgreens Boots Alliance (WBA - Free Report) . Shares have added about 6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Walgreens due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Walgreens Boots Q4 Earnings Surpass Estimates

Walgreens Boots Alliance, Inc.reported adjusted earnings per share (EPS) of $1.43 for fourth-quarter fiscal 2019, down 3.4% year over year (down 2.9% at constant exchange rate or CER). However, the figure exceeded the Zacks Consensus Estimate by 1.4%.

Meanwhile, reported EPS came in at 75 cents, down 51.4% on a year-over-year basis.

Sluggishness in Retail Pharmacy International and margin contractions put pressure on the bottom line during the quarter.

For the full year, adjusted EPS was $5.99, reflecting a 0.5% decline from the year-ago period. This, however, outpaced the Zacks Consensus Estimate by 0.3%.

Total Sales

Walgreens Boots recorded total sales of $33.95 billion in the fiscal fourth quarter, up 1.5% year over year and 2.6% at constant exchange rate or CER. The top line edged past the Zacks Consensus Estimate of $33.86 billion. Year-over-year growth was led by improvements within the Retail Pharmacy USA and Pharmaceutical Wholesale divisions, partially offset by a dull performance within Retail Pharmacy International.

For the full year, total revenues were $136.87 billion, accounting for a 4.1% improvement from the year-ago period. This too beat the Zacks Consensus Estimate of $136.79 billion by a slight margin.

Segments in Detail

Walgreens Boots reports through three segments: Retail Pharmacy USA, Retail Pharmacy International and Pharmaceutical Wholesale.

Retail Pharmacy USA

The segment’s sales came in at $26.04 billion in the fourth quarter, highlighting an improvement of 2.1% year over year. Excluding the impact of store optimization following the acquisition of Rite Aid stores, organic sales growth was 2.9% year over year.

Pharmacy sales, accounting for 75.1% of the Retail Pharmacy USA division’s sales in the quarter, increased 4.2% from the year-ago quarter on higher brand inflation, prescription volume and growth in central specialty. Pharmacy sales at comparable stores improved 5.4% while prescriptions filled in comparable stores (adjusted to 30-day equivalents) rose 3.3% year over year in the quarter. The impact of store optimization following the acquisition of Rite Aid stores caused a 3.9% dip in retail sales. Comparable retail sales slid 1.2% year over year.

Retail Pharmacy International

Revenues at the Retail Pharmacy International division decreased 6.3% on a year-over-year basis to $2.7 billion in the fiscal fourth quarter. Sales were down 1.8% at CER considering a 2.1% slip in Boots UK.

Comparable pharmacy sales slipped 1% at CER and comparable retail sales declined 2.7% in the reported quarter.

Pharmaceutical Wholesale

The Pharmaceutical Wholesale division’s quarterly sales were $5.74 billion, up 3.1% year over year (comparable sales were up 7.9% at CER, banking on growth in the emerging markets and the United Kingdom).

Margins

Gross profit in the reported quarter fell 4.6% year over year to $7.23 billion. Gross margin contracted 137 basis points (bps) to 21.3%.

Selling, general and administrative (SG&A) expenses were up 2.9% year over year to $6.4 billion. Adjusted operating income deteriorated 39% to $819 million. Overall, operating margin contracted 162 bps to 2.4%.

Financial Condition

Walgreens Boots exited the fiscal 2019 with cash and cash equivalents of $1.02 billion compared with $785 million at the end of fiscal 2018. Long-term debt was $11.09 billion at the end of the current fiscal compared with $12.43 billion at the end of the last fiscal. For the full year, the company generated operating cash flow of $5.59 billion compared with $8.26 billion in the year-ago period.

Fiscal 2020 Guidance Initiated

Walgreens Boots announced its fiscal 2020 adjusted EPS guidance to roughly be flat with the year-ago period’s figure at CER with a range of plus or minus 3% from the same. The company noted that without considering the impact of lower fiscal 2019 bonus payout, this expected performance represents a year-over-year increase in the mid-single digits. The Zacks Consensus estimate of fiscal 2020 adjusted earnings is currently pegged at $5.92 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Walgreens has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Walgreens has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Walgreens Boots Alliance, Inc. (WBA) - free report >>

Published in