WBA - Walgreens falls after lowering earnings guidance

2023-06-27 08:01:55 ET

Walgreens Boots Alliance ( NASDAQ: WBA ) fell ~7% pre-market Tuesday after the pharmacy chain failed to meet earnings expectations for Q3 FY23 and trimmed its outlook, citing macro factors and a weaker demand for COVID-19 vaccine and tests. Walgreens’ ( WBA ) rivals CVS Health ( CVS ) and Rite Aid ( RAD ) also dropped in reaction.

"Our revised guidance takes an appropriately cautious forward view in light of consumer spending uncertainty while still demonstrating clear drivers of a return to operating growth next fiscal year," Chief Executive Rosalind Brewer said.

However, the Deerfield, Illinois-based drug retailer exceeded consensus with its topline recording $35.4B in revenue for the quarter with ~9% YoY growth thanks to its U.S. Retail Pharmacy and International segments as well as its expanding U.S. Healthcare segment.

The U.S. Retail Pharmacy segment added $27.9B to the topline with ~4% YoY growth, while total prescriptions filled in the quarter remained flat adjusted to 30-day equivalents. The company conducted 0.8M COVID-19 vaccinations during the quarter, compared to 4.7M, in the year-ago period.

Meanwhile, sales from the International segment grew ~5% YoY to $5.6B, with Boots UK sales expanding ~10% on a constant currency basis. The U.S. Healthcare segment added $2.0B to the topline with a ~22% growth rate on a pro forma basis.

Walgreens’ ( WBA ) adj. gross margin dropped to ~19% from ~20.3% a year ago, while operating loss widened ~67% YoY to $0.5B, reflecting the impact from a $431M non-cash impairment charge related to Boots UK.

Despite sales growth, "significantly lower demand for COVID-related services, a more cautious and value-driven consumer, and a recently weaker respiratory season created margin pressures in the quarter," Brewer added.

Net earnings slumped ~59% YoY to $118M, mainly due to lower operating income, while adj. net earnings grew ~3% on a constant currency basis to $860M amid a 19.5% headwind from sharply lower COVID-19 vaccine and testing volumes. The company has revised its FY24 cost savings target to $4.1B from $3.5B, expecting cost savings of $800M during FY24.

Walgreens ( WBA ) cited a lower COVID-19 contribution and a cautious macro outlook in lowering its adj. earnings outlook for FY23 to $4.00–$4.05 from $4.45–$4.65 previously and compared to $4.45 in the consensus.

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