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Walgreens Boots (WBA) Down 2.4% Since Last Earnings Report

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It has been about a month since the last earnings report for Walgreens Boots Alliance, Inc. (WBA - Free Report) . Shares have lost about 2.4% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is WBA 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.

Recent Earnings

Walgreens Boots reported adjusted earnings per share (EPS) of $1.73 in second-quarter fiscal 2018, up 27.2% year over year and 25.7% at constant exchange rate (CER). The figure surpassed the Zacks Consensus Estimate of $1.55.

On a reported basis, net earnings came in at $1.3 billion, reflecting an increase of 27.3% from the prior-year quarter. Reported EPS came in at $1.36, up 38.8% on a year-over-year basis.

Total Sales

Walgreens Boots recorded total sales of $33.02 billion in the fiscal second quarter, up 12.1% year over year and 9.4% at CER. The top line outpaced the Zacks Consensus Estimate of $31.99 billion.

Segments in Detail

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

Retail Pharmacy USA

The segment recorded sales of $24.5 billion in the second quarter, highlighting an improvement of 12.2% year over year. Within this segment, total sales at comparable drugstores rose 2.4%, while prescriptions filled in comparable stores grew 4% on account of Medicare Part D growth and volume growth from strategic pharmacy collaborations. Comparable retail sales dropped 2.7%.

Pharmacy sales, which accounted for 70.3% of the Retail Pharmacy USA division’s sales in the quarter, increased 18.7% from the year-ago quarter. Pharmacy sales at comparable stores rose 5.1% on higher volumes.

Retail Pharmacy International

Revenues at the Retail Pharmacy International division rose 7% on a year-over-year basis (down 2.6% at CER) to $3.3 billion owing to currency fluctuations. At CER, comparable store sales in the second quarter declined 1.7% year over year along with a 0.6% uptick in comparable pharmacy sales.

Pharmaceutical Wholesale

The Pharmaceutical Wholesale division recorded quarterly sales of $5.8 billion, up 14.4% year over year (up 3.4% at CER).

Margins

Gross profit in the reported quarter increased 7.1% year over year to $8.09 billion. However, gross margin contracted 116 basis points (bps) to 24.5%.

Selling, general and administrative (SG&A) expenses were up 3.2% year over year to $6.32 billion. However, adjusted operating income increased 23.7% to $1.78 billion. Adjusted operating margin contracted 50 bps to 5.4%.

Financial Condition

Walgreens Boots exited the second quarter with cash and cash equivalents of $1.75 billion, compared with $1.83 billion at the end of the first quarter. Long-term debt was $12.53 billion, compared with $12.73 billion at the end of the preceding quarter.

Year to date, the company has generated operating cash flow of $3.18 billion, compared with $3.38 billion a year ago. The resultant free cash flow was $2.51 billion.

Guidance Raised

Walgreens Boots has raised the low and high ends of its outlook for fiscal 2018 EPS to $5.85 to $6.05 from $5.45 to $5.70. The Zacks Consensus Estimate for earnings is pegged at $5.79, below the company’s guided range.

The company now expects cash tax benefit from U.S. tax law changes in excess of $350 million in fiscal 2018, compared with the previously announced estimate of more than $200 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to six lower.

 

VGM Scores

At this time, WBA has a nice Growth Score of B, however its Momentum is doing a bit better with an A. The stock was also 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.

Based on our scores, the stock is more suitable for value and momentum investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, WBA has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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