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Walgreens Boots (WBA) Q3 Earnings Miss, Gross Margin Down
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Walgreens Boots Alliance, Inc. (WBA - Free Report) delivered adjusted earnings per share (EPS) of 63 cents in the third quarter of fiscal 2024, down 37% from the year-ago quarter’s figure (same at constant exchange rate or CER). The figure missed the Zacks Consensus Estimate by 5.97%.
GAAP earnings for the third quarter of fiscal 2024 were 40 cents per share compared with the year-ago quarter’s earnings of 14 cents.
Total Sales
Walgreens Boots recorded total sales of $36.35 billion in the fiscal third quarter, up 2.6% year over year and 2.5% at CER. The top line also surpassed the Zacks Consensus Estimate by 1.07%.
Quarterly Details
The company currently operates its business through three reportable segments — U.S. Retail Pharmacy, International and U.S. Healthcare.
U.S. Retail Pharmacy
The segment’s sales increased 2.3% year over year to $28.5 billion in the fiscal third quarter, driven entirely by comparable pharmacy sales, partly offset by a retail decline. Comparable sales jumped 3.5% from the year-ago quarter’s levels, driven by brand inflation and pharmacy and prescription volume, however partially offset by a drop in retail sales.
Pharmacy sales were up 4.4% from the year-ago quarter’s figures, and comparable pharmacy sales increased 5.7%, benefiting from higher branded drug inflation and script growth.
Retail sales fell 4%, and comparable retail sales were down 2.3% year over year, reflecting a challenging retail environment and a continued channel shift.
International
Revenues in the International division rose 2.8% on a year-over-year basis and increased 1.6% at CER to $5.7 billion in the fiscal third quarter.
Boots UK sales rose 1.6% year over year. In Germany, wholesale business sales increased 4.9% in the fiscal third quarter.
Boots UK’s comparable retail sales advanced 6%. Further, Boots UK’s comparable pharmacy sales rose 5.8% year over year.
U.S. Healthcare
U.S. Healthcare reported fiscal third-quarter revenues of $2.1 billion. The metric was up 7.6% from the year-ago quarter’s levels, led by VillageMD and Shields.
Within the segment, the Shields business rose 24%, driven by the growth within existing partnerships. VillageMD jumped 7%, reflecting additional lives in risk and fee-for-service.
Margins
The gross profit in the reported quarter fell 1.9% year over year to $6.46 billion. The gross margin contracted 84 bps to 17.8%.
Selling, general and administrative expenses fell 10.3% year over year to $6.39 billion.
The company reported an adjusted operating profit of $66 million for the quarter against the operating loss of $534 million in the year-ago period.
Financial Condition
Walgreens Boots exited the third quarter of fiscal 2024 with cash and cash equivalents of $703 million compared with $739 million recorded in the second quarter of fiscal 2024. The total debt was $8.91 billion compared with $9.06 billion in the second quarter of fiscal 2024.
The cumulative cash used by operating activities at the end of the third quarter of fiscal 2024 was $314 million compared with the year-ago period’s cash inflow of $1.22 billion.
Fiscal 2024 Guidance
The company revised its outlook for fiscal 2024.
Adjusted EPS guidance is now expected in the band of $2.80-$2.95 (earlier $3.20-$3.35) range. The current Zacks Consensus Estimate is pegged at $3.06.
Our Take
Walgreens Boots missed the consensus mark for earnings in the third quarter of fiscal 2024, while revenues were better than expected. The bottom line was pressured by the difficulties in the U.S. Retail Pharmacy business, reflecting the challenging consumer environment and pharmacy industry trends. Branded mix impacts, and increased regulatory and reimbursement pressures, including fluctuations in NADAC pricing, have hurt the pricing dynamics.
Additionally, the script market growth is not yet back to the pre-pandemic levels, which affected WBA’s performance and profitability. The company anticipates the tough operating conditions to persist for the remainder of the year, resulting in a reduced EPS forecast for fiscal 2024. The contraction of the gross margin is also discouraging for the stock.
On a positive note, both the U.S. Healthcare and International segments met the company's expectations. Walgreens Boots continues to manage costs efficiently and is set to deliver $1 billion in cost savings this year. Following the actions previously undertaken to right-size VillageMD's footprint, the business is now moving toward profitability by adding more patients and optimizing its cost structure.
Zacks Rank & Key Picks
Walgreens Boots currently carries a Zacks Rank #5 (Strong Sell).
Hims & Hers Health, sporting a Zacks Rank #1 (Strong Buy), reported first-quarter 2024 earnings of 5 cents per share, which topped the Zacks Consensus Estimate by a remarkable 150%. Revenues of $278.2 million beat the Zacks Consensus Estimate by 2.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.
HIMS’ 2024 earnings are expected to surge 281.8% compared with the industry’s 17.9%. The company’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average beat being 79.2%.
DaVita, carrying a Zacks Rank #2 (Buy), reported first-quarter 2024 earnings of $2.38, which topped the Zacks Consensus Estimate by 50.6%. Revenues of $3.07 billion surpassed the Zacks Consensus Estimate by 2%.
DVA has an estimated long-term earnings growth rate of 13.6% compared to the industry’s 12.7%. In the trailing four quarters, the company delivered an average earnings surprise of 29.4%.
ResMed, carrying a Zacks Rank #2, reported a third-quarter fiscal 2024 adjusted EPS of $2.13, which surpassed the Zacks Consensus Estimate by 10.9%. Revenues of $1.20 billion topped the Zacks Consensus Estimate by 1.4%.
RMD has an estimated fiscal 2024 earnings growth rate of 19.6% compared with the industry’s 13.2% growth. The company’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 2.8%.
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Walgreens Boots (WBA) Q3 Earnings Miss, Gross Margin Down
Walgreens Boots Alliance, Inc. (WBA - Free Report) delivered adjusted earnings per share (EPS) of 63 cents in the third quarter of fiscal 2024, down 37% from the year-ago quarter’s figure (same at constant exchange rate or CER). The figure missed the Zacks Consensus Estimate by 5.97%.
GAAP earnings for the third quarter of fiscal 2024 were 40 cents per share compared with the year-ago quarter’s earnings of 14 cents.
Total Sales
Walgreens Boots recorded total sales of $36.35 billion in the fiscal third quarter, up 2.6% year over year and 2.5% at CER. The top line also surpassed the Zacks Consensus Estimate by 1.07%.
Quarterly Details
The company currently operates its business through three reportable segments — U.S. Retail Pharmacy, International and U.S. Healthcare.
U.S. Retail Pharmacy
The segment’s sales increased 2.3% year over year to $28.5 billion in the fiscal third quarter, driven entirely by comparable pharmacy sales, partly offset by a retail decline. Comparable sales jumped 3.5% from the year-ago quarter’s levels, driven by brand inflation and pharmacy and prescription volume, however partially offset by a drop in retail sales.
Pharmacy sales were up 4.4% from the year-ago quarter’s figures, and comparable pharmacy sales increased 5.7%, benefiting from higher branded drug inflation and script growth.
Retail sales fell 4%, and comparable retail sales were down 2.3% year over year, reflecting a challenging retail environment and a continued channel shift.
International
Revenues in the International division rose 2.8% on a year-over-year basis and increased 1.6% at CER to $5.7 billion in the fiscal third quarter.
Boots UK sales rose 1.6% year over year. In Germany, wholesale business sales increased 4.9% in the fiscal third quarter.
Boots UK’s comparable retail sales advanced 6%. Further, Boots UK’s comparable pharmacy sales rose 5.8% year over year.
U.S. Healthcare
U.S. Healthcare reported fiscal third-quarter revenues of $2.1 billion. The metric was up 7.6% from the year-ago quarter’s levels, led by VillageMD and Shields.
Within the segment, the Shields business rose 24%, driven by the growth within existing partnerships. VillageMD jumped 7%, reflecting additional lives in risk and fee-for-service.
Margins
The gross profit in the reported quarter fell 1.9% year over year to $6.46 billion. The gross margin contracted 84 bps to 17.8%.
Selling, general and administrative expenses fell 10.3% year over year to $6.39 billion.
The company reported an adjusted operating profit of $66 million for the quarter against the operating loss of $534 million in the year-ago period.
Financial Condition
Walgreens Boots exited the third quarter of fiscal 2024 with cash and cash equivalents of $703 million compared with $739 million recorded in the second quarter of fiscal 2024. The total debt was $8.91 billion compared with $9.06 billion in the second quarter of fiscal 2024.
The cumulative cash used by operating activities at the end of the third quarter of fiscal 2024 was $314 million compared with the year-ago period’s cash inflow of $1.22 billion.
Fiscal 2024 Guidance
The company revised its outlook for fiscal 2024.
Adjusted EPS guidance is now expected in the band of $2.80-$2.95 (earlier $3.20-$3.35) range. The current Zacks Consensus Estimate is pegged at $3.06.
Our Take
Walgreens Boots missed the consensus mark for earnings in the third quarter of fiscal 2024, while revenues were better than expected. The bottom line was pressured by the difficulties in the U.S. Retail Pharmacy business, reflecting the challenging consumer environment and pharmacy industry trends. Branded mix impacts, and increased regulatory and reimbursement pressures, including fluctuations in NADAC pricing, have hurt the pricing dynamics.
Additionally, the script market growth is not yet back to the pre-pandemic levels, which affected WBA’s performance and profitability. The company anticipates the tough operating conditions to persist for the remainder of the year, resulting in a reduced EPS forecast for fiscal 2024. The contraction of the gross margin is also discouraging for the stock.
On a positive note, both the U.S. Healthcare and International segments met the company's expectations. Walgreens Boots continues to manage costs efficiently and is set to deliver $1 billion in cost savings this year. Following the actions previously undertaken to right-size VillageMD's footprint, the business is now moving toward profitability by adding more patients and optimizing its cost structure.
Zacks Rank & Key Picks
Walgreens Boots currently carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks from the broader medical space are Hims & Hers Health (HIMS - Free Report) , DaVita (DVA - Free Report) and ResMed (RMD - Free Report) .
Hims & Hers Health, sporting a Zacks Rank #1 (Strong Buy), reported first-quarter 2024 earnings of 5 cents per share, which topped the Zacks Consensus Estimate by a remarkable 150%. Revenues of $278.2 million beat the Zacks Consensus Estimate by 2.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.
HIMS’ 2024 earnings are expected to surge 281.8% compared with the industry’s 17.9%. The company’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average beat being 79.2%.
DaVita, carrying a Zacks Rank #2 (Buy), reported first-quarter 2024 earnings of $2.38, which topped the Zacks Consensus Estimate by 50.6%. Revenues of $3.07 billion surpassed the Zacks Consensus Estimate by 2%.
DVA has an estimated long-term earnings growth rate of 13.6% compared to the industry’s 12.7%. In the trailing four quarters, the company delivered an average earnings surprise of 29.4%.
ResMed, carrying a Zacks Rank #2, reported a third-quarter fiscal 2024 adjusted EPS of $2.13, which surpassed the Zacks Consensus Estimate by 10.9%. Revenues of $1.20 billion topped the Zacks Consensus Estimate by 1.4%.
RMD has an estimated fiscal 2024 earnings growth rate of 19.6% compared with the industry’s 13.2% growth. The company’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 2.8%.