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Walgreens Boots (WBA) Earnings Top, Margins Slide in Q4
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Walgreens Boots Alliance, Inc. (WBA - Free Report) reported adjusted earnings per share (EPS) of $1.07 in the fourth quarter of fiscal 2016, up 21.6% from the year-ago quarter. Adjusted EPS also beat the Zacks Consensus Estimate by 8.1%.
Single-digit growth observed in the company’s top line primarily drove the adjusted earnings.
On a reported basis, net earnings came in at $1.0 billion, a significant improvement from $26 million in the year-ago quarter. Reported earnings per share came in at 95 cents, reflecting a rise of 97.8% year over year.
For full-year 2016, adjusted EPS came in at $4.59, up 18.3% compared from the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of $4.51.
Total Sales
Walgreens Boots recorded total sales of $28.6 billion in the fiscal fourth quarter, up 0.4% year over year or 2.5% at constant exchange rate (CER). However, the top line missed the Zacks Consensus Estimate of $29.2 billion.
Fiscal 2016 total sales totaled $117.4 billion, up 13.4% from the year-ago comparable period. However, it missed the Zacks Consensus Estimate of $117.9 billion by a slight margin.
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 $20.7 billion in the reported quarter, reflecting an increase of 4% on a year-over-year basis. Within this segment, total sales in comparable drugstores increased 3.2%, while prescriptions filled in comparable stores grew 3.7% on account of continued growth in Medicare Part D volumes. On the other hand, comparable retail stores dropped 0.3% due to lower sales of certain consumables and seasonal items, partially offset by higher sales in the health and wellness and beauty categories.
Pharmacy sales, which accounted for 69% of the division’s sales in the quarter, increased 6.2% from the year-ago quarter, while pharmacy sales in comparable stores increased 5%.
Revenues from the Retail Pharmacy International division dropped 10.9% on a year-over-year basis (up 1.4% at CER) to $3.2 billion, on account of currency fluctuations. At CER, comparable store sales in the fourth quarter decreased 0.6% year over year, while comparable pharmacy sales were flat as the loss of certain institutional sales contracts in Chile was offset by growth in other markets.
The Pharmaceutical Wholesale division recorded quarterly sales of $5.4 billion, down 6.2%. At CER, excluding acquisitions and dispositions, comparable store sales improved 2.9%.
Margins
Gross profit decreased 87.1% year over year to $7.1 billion. Reported gross margin contracted a stupendous 16899 basis points (bps).
Selling, general and administrative (SG&A) expenses contracted 4.9% to $6 billion. However, adjusted operating income decreased 97.7% to $1.1 billion owing to significantly lower gross profits. Accordingly, adjusted operating margin contracted a massive 16782 bps to 3.9%.
Financial Condition
Walgreens Boots exited fiscal 2016 with cash and cash equivalents of $9.8 billion, compared with $3 billion at the end of fiscal 2015. Long-term debt was $18.7 billion, compared with $13.3 billion at the end of the prior fiscal year.
Moreover, the company generated operating cash flow of $7.8 billion in 2016 compared with $5.6 billion a year ago. The resultant free cash flow was $6.5 billion in 2016.
Guidance
Walgreens Boots has issued its fiscal 2017 guidance. The company expects adjusted EPS in the $4.85–$5.20 range for the fiscal. The current Zacks Consensus Estimate for fiscal 2017 earnings is $5.08, within the company’s guided range.
This guidance assumes 5 to 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.
Progress on Rite Aid Acquisition
In a separate press release, Walgreens Boots announced that the closing date of the impending acquisition of Rite Aid has been extended from Oct 27, 2016 to Jan 27, 2017.
Notably, in Oct 2015, Walgreens Boots announced an agreement to acquire 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 fourth-quarter fiscal 2016 with earnings comfortably beating the Zacks Consensus Estimate and sales missing the mark. We note that the reported results are reflective of the trend exhibited by the company in the preceding five quarters. On a brighter note, the company has a strong cash position as is evident from the rise in cash flow reserve in the reported quarter. However, the company’s postponement of the Rite Aid buyout adds to our concerns.
Nevertheless, Walgreens Boots was successful in achieving its earlier set target of achieving combined net synergies of at least $1 billion, on account of the merger with Alliance Boots.
Zacks Rank & Key Picks
Walgreens Boots currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the medical product sector include GW Pharmaceuticals plc , Quidel Corp. (QDEL - Free Report) and NuVasive, Inc. . Both GW Pharmaceuticals and Quidel sport a Zacks Rank #1 (Strong Buy), while NuVasive carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
GW Pharmaceuticals surged 75.4% year to date compared to the S&P 500’s 4.91% over the same period. The company’s four-quarter average earnings surprise is 41.6%.
Quidel rallied 16.6% in the past one year, higher than the S&P 500’s 6.2% gain. Over the next five years, the stock is estimated to record earnings growth rate of 20%, higher than the industry average of 14.8%.
NuVasive’s shares soared 39% over the past one year, compared to the S&P 500’s 6.2%. Over the next five years, the stock is expected to see 16.7% earnings growth, compared to the industry average of 14.8%. It has a trailing four-quarter average earnings surprise of 19%.
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Walgreens Boots (WBA) Earnings Top, Margins Slide in Q4
Walgreens Boots Alliance, Inc. (WBA - Free Report) reported adjusted earnings per share (EPS) of $1.07 in the fourth quarter of fiscal 2016, up 21.6% from the year-ago quarter. Adjusted EPS also beat the Zacks Consensus Estimate by 8.1%.
Single-digit growth observed in the company’s top line primarily drove the adjusted earnings.
On a reported basis, net earnings came in at $1.0 billion, a significant improvement from $26 million in the year-ago quarter. Reported earnings per share came in at 95 cents, reflecting a rise of 97.8% year over year.
WALGREENS BAI Price, Consensus and EPS Surprise
WALGREENS BAI Price, Consensus and EPS Surprise | WALGREENS BAI Quote
For full-year 2016, adjusted EPS came in at $4.59, up 18.3% compared from the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of $4.51.
Total Sales
Walgreens Boots recorded total sales of $28.6 billion in the fiscal fourth quarter, up 0.4% year over year or 2.5% at constant exchange rate (CER). However, the top line missed the Zacks Consensus Estimate of $29.2 billion.
Fiscal 2016 total sales totaled $117.4 billion, up 13.4% from the year-ago comparable period. However, it missed the Zacks Consensus Estimate of $117.9 billion by a slight margin.
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 $20.7 billion in the reported quarter, reflecting an increase of 4% on a year-over-year basis. Within this segment, total sales in comparable drugstores increased 3.2%, while prescriptions filled in comparable stores grew 3.7% on account of continued growth in Medicare Part D volumes. On the other hand, comparable retail stores dropped 0.3% due to lower sales of certain consumables and seasonal items, partially offset by higher sales in the health and wellness and beauty categories.
Pharmacy sales, which accounted for 69% of the division’s sales in the quarter, increased 6.2% from the year-ago quarter, while pharmacy sales in comparable stores increased 5%.
Revenues from the Retail Pharmacy International division dropped 10.9% on a year-over-year basis (up 1.4% at CER) to $3.2 billion, on account of currency fluctuations. At CER, comparable store sales in the fourth quarter decreased 0.6% year over year, while comparable pharmacy sales were flat as the loss of certain institutional sales contracts in Chile was offset by growth in other markets.
The Pharmaceutical Wholesale division recorded quarterly sales of $5.4 billion, down 6.2%. At CER, excluding acquisitions and dispositions, comparable store sales improved 2.9%.
Margins
Gross profit decreased 87.1% year over year to $7.1 billion. Reported gross margin contracted a stupendous 16899 basis points (bps).
Selling, general and administrative (SG&A) expenses contracted 4.9% to $6 billion. However, adjusted operating income decreased 97.7% to $1.1 billion owing to significantly lower gross profits. Accordingly, adjusted operating margin contracted a massive 16782 bps to 3.9%.
Financial Condition
Walgreens Boots exited fiscal 2016 with cash and cash equivalents of $9.8 billion, compared with $3 billion at the end of fiscal 2015. Long-term debt was $18.7 billion, compared with $13.3 billion at the end of the prior fiscal year.
Moreover, the company generated operating cash flow of $7.8 billion in 2016 compared with $5.6 billion a year ago. The resultant free cash flow was $6.5 billion in 2016.
Guidance
Walgreens Boots has issued its fiscal 2017 guidance. The company expects adjusted EPS in the $4.85–$5.20 range for the fiscal. The current Zacks Consensus Estimate for fiscal 2017 earnings is $5.08, within the company’s guided range.
This guidance assumes 5 to 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.
Progress on Rite Aid Acquisition
In a separate press release, Walgreens Boots announced that the closing date of the impending acquisition of Rite Aid has been extended from Oct 27, 2016 to Jan 27, 2017.
Notably, in Oct 2015, Walgreens Boots announced an agreement to acquire 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 fourth-quarter fiscal 2016 with earnings comfortably beating the Zacks Consensus Estimate and sales missing the mark. We note that the reported results are reflective of the trend exhibited by the company in the preceding five quarters. On a brighter note, the company has a strong cash position as is evident from the rise in cash flow reserve in the reported quarter. However, the company’s postponement of the Rite Aid buyout adds to our concerns.
Nevertheless, Walgreens Boots was successful in achieving its earlier set target of achieving combined net synergies of at least $1 billion, on account of the merger with Alliance Boots.
Zacks Rank & Key Picks
Walgreens Boots currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the medical product sector include GW Pharmaceuticals plc , Quidel Corp. (QDEL - Free Report) and NuVasive, Inc. . Both GW Pharmaceuticals and Quidel sport a Zacks Rank #1 (Strong Buy), while NuVasive carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
GW Pharmaceuticals surged 75.4% year to date compared to the S&P 500’s 4.91% over the same period. The company’s four-quarter average earnings surprise is 41.6%.
Quidel rallied 16.6% in the past one year, higher than the S&P 500’s 6.2% gain. Over the next five years, the stock is estimated to record earnings growth rate of 20%, higher than the industry average of 14.8%.
NuVasive’s shares soared 39% over the past one year, compared to the S&P 500’s 6.2%. Over the next five years, the stock is expected to see 16.7% earnings growth, compared to the industry average of 14.8%. It has a trailing four-quarter average earnings surprise of 19%.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>