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Walgreens (WBA) Down 2.2% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Walgreens Boots Alliance (WBA - Free Report) . Shares have lost about 2.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Walgreens due for a breakout? 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 Q1 Earnings Lag Estimates, Margins Fall

Walgreens Boots Alliance, Inc.  reported adjusted earnings per share of $1.37 for first-quarter fiscal 2020, down 6.2% year over year (down 5.7% at constant exchange rate or CER). Also, the figure missed the Zacks Consensus Estimate by 2.1%.

Reported earnings per share of 95 cents declined 19.5% on a year-over-year basis.

Sluggishness in Retail Pharmacy International and margin contraction built pressure on the bottom line.

Total Sales

Walgreens Boots recorded total sales of $34.34 billion in the fiscal first quarter, up 1.6% year over year and 2.3% at constant exchange rate or CER. The top line, however, missed the Zacks Consensus by 0.8%. The year-over-year growth was led by improvement within the Retail Pharmacy USA and Pharmaceutical Wholesale divisions, partially offset by a dull performance by Retail Pharmacy International.

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 totaled $26.1 billion in the first quarter, highlighting an improvement of 1.6% year over year.

Pharmacy sales increased 2.9% from the year-ago quarter on higher brand inflation, prescription volume and growth in central specialty. Pharmacy sales at comparable stores improved 2.5% year over year, while prescriptions filled in comparable stores (adjusted to 30-day equivalents) rose 2.8% in the quarter. Retail sales dipped 2.2% while comparable retail sales slid 0.5% year over year on continued de-emphasis of tobacco.

Retail Pharmacy International

Revenues at the Retail Pharmacy International division declined 5.4% on a year-over-year basis to $2.7 billion in the fiscal first quarter. Sales were down 2.7% at CER due to lower Boots UK sales and lower sales in Chile.

Comparable pharmacy sales increased 0.6% at CER and comparable retail sales declined 3% at CER in the reported quarter.

Pharmaceutical Wholesale

The Pharmaceutical Wholesale division’s quarterly sales were $6 billion, up 5.2% year over year (comparable sales were up 8.3% at CER on growth in the emerging markets and the United Kingdom).

Margins

Gross profit in the reported quarter fell 4.9% year over year to $7.26 billion. Gross margin contracted 146 basis points (bps) to 21.1%.

Selling, general and administrative (SG&A) expenses were down 26.5% year over year to $6.26 billion. Operating income deteriorated 39% to $1 billion. Overall, operating margin contracted 111 bps to 2.9%.

Financial Condition

Walgreens Boots exited the first quarter of fiscal 2020 with cash and cash equivalents of $811 million compared with $1.02 billion at the end of fiscal 2019. Long-term debt was $10.63 billion at the end of the first quarter of fiscal 2020 compared with $11.09 billion at the end of the fiscal 2019. Net cash provided by operating activities was $1.1 billion, up from $460 million from year-ago period.

Fiscal 2020 Guidance

The company reaffirmed its guidance at roughly flat growth in fiscal 2020 adjusted EPS, on a constant currency basis, with a range of plus or minus 3%. The Zacks Consensus Estimate for fiscal 2020 adjusted earnings per share is currently pegged at $5.93.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -8.12% due to these changes.

VGM Scores

At this time, Walgreens has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Walgreens has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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