Walgreens tops quarterly income estimates, however narrows revenue outlook in ‘difficult’ economic system

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An individual rides previous a Walgreens truck, owned by the Walgreens Boots Alliance, Inc., in Manhattan, New York Metropolis, U.S., November 26, 2021. 

Andrew Kelly | Reuters

Walgreens on Thursday reported fiscal second-quarter gross sales that beat Wall Road’s expectations, however lowered the excessive finish of its full-year adjusted earnings outlook partly as a consequence of a “difficult” retail setting within the U.S.

The corporate additionally posted a steep internet loss for the quarter because it recorded a hefty practically $6 billion cost associated to the decline in worth of its funding in primary-care supplier VillageMD. Walgreens has closed 140 VillageMD clinics amid monetary woes for the enterprise, which it sees as important to its ongoing push to rework from a serious drugstore chain into a big health-care firm.

However Walgreens doesn’t consider the VillageMD cost “can have a major influence on our monetary place, or our means to take a position throughout companies going ahead,” Walgreens international CFO Manmohan Mahajan mentioned throughout an earnings name Thursday.

The outcomes come as Walgreens’ new CEO, Tim Wentworth, works to slash prices and steer the corporate out of a tough spot with a slate of new executives. Shares of Walgreens fell 30% final 12 months as the corporate confronted weakening demand for Covid merchandise, low pharmacy reimbursement charges, an unsteady push into well being care and a difficult macroeconomic setting. 

In a launch Thursday, the corporate mentioned it’s assured it should meet its aim of saving $1 billion throughout fiscal 2024 by its ongoing cost-cutting program. Walgreens has laid off staff, closed unprofitable shops and used synthetic intelligence to make its provide chain extra environment friendly, amongst different efforts.

This is what Walgreens reported for the quarter, in contrast with what Wall Road was anticipating, based mostly on a survey of analysts by LSEG, previously often known as Refinitiv:

  • Earnings per share: $1.20 adjusted vs. 82 cents anticipated
  • Income: $37.05 billion vs. $35.86 billion anticipated

Walgreens narrowed its fiscal 2024 adjusted earnings steering to between $3.20 and $3.35 per share. That compares with the corporate’s earlier outlook of $3.20 to $3.50 per share. Analysts surveyed by LSEG count on full-year adjusted earnings of $3.24 per share.

Walgreens mentioned the brand new steering displays the hurdles going through retailers within the U.S. and an early wind-down of its sales-leaseback program. It additionally takes under consideration decrease earnings as a consequence of Walgreens’ ahead sale of shares of drug distributor Cencora, previously often known as AmerisourceBergen.

The corporate mentioned a stronger efficiency in its pharmacy providers phase and a decrease adjusted efficient tax charge helped to offset the elements dragging on its earnings. 

However Mahajan mentioned Walgreens expects the present financial backdrop will “proceed to negatively influence our U.S. retail gross sales within the brief time period.”

Wentworth famous on the decision that the corporate is “exploring modern methods to spice up profitability and progress” in its retail pharmacy division, corresponding to by new pharmacy reimbursement fashions.

The corporate didn’t give a brand new income forecast for the fiscal 12 months. Walgreens has not supplied that steering since October, when it mentioned it sees $141 billion to $145 billion in gross sales. 

The corporate reported a internet lack of $5.91 billion, or $6.85 per share, for the quarter. That compares with a internet revenue of $703 million, or 81 cents per share, for a similar interval a 12 months in the past. a

Excluding sure objects, together with the $5.8 billion non-cash cost associated VillageMD, adjusted earnings per share have been $1.20 for the quarter.

The corporate booked gross sales of $37.05 billion within the quarter, a roughly 6% leap from the identical interval a 12 months in the past. 

Walgreens sees progress throughout all divisions

The corporate mentioned that enhance displays gross sales progress throughout its three enterprise segments. However Walgreens’ U.S. health-care division stood out as gross sales jumped about 33% within the fiscal second quarter in contrast with the identical interval a 12 months in the past. 

Income for the phase got here in at $2.18 billion.

The corporate mentioned the upper gross sales mirror VillageMD’s acquisition of multispecialty care supplier Summit Well being and progress throughout all companies within the phase on a pro-forma foundation.

VillageMD gross sales grew 20% as a consequence of same-clinic progress, amongst different elements. Gross sales from the phase’s specialty pharmacy firm, Shields Well being Options, grew 13%, as a consequence of new contracts and expansions of present partnerships.

Specialty pharmacies are designed to ship medicines with distinctive dealing with, storage and distribution necessities, typically for sufferers with complicated situations corresponding to most cancers and rheumatoid arthritis.

Walgreens and VillageMD

Supply: Walgreens

In the meantime, Walgreens’ U.S. retail pharmacy phase generated $28.86 billion in gross sales within the fiscal second quarter, a rise of just about 5% from the identical interval final 12 months.

That phase operates greater than 8,000 drugstores throughout the U.S., which promote prescription and nonprescription medication in addition to well being and wellness, magnificence, private care, and meals merchandise. 

Walgreens mentioned pharmacy gross sales for the quarter rose 8.2% in contrast with the year-ago quarter. Comparable gross sales climbed 8.7% as a consequence of value inflation in model medicines and “robust execution” in pharmacy providers, largely pushed by the corporate’s vaccine portfolio.

Complete prescriptions crammed within the quarter together with immunizations totaled 305.7 million, a greater than 2% enhance from the identical interval a 12 months in the past. 

Retail gross sales for the quarter fell 4.5% from the prior-year quarter, and comparable retail gross sales declined 4.3%. The corporate pointed to a difficult retail setting and a weaker respiratory season, amongst different elements. 

Walgreens’ worldwide phase, which operates greater than 3,000 retail shops overseas, posted $6.02 billion in gross sales within the fiscal second quarter. That is a rise of greater than 6% from the year-ago interval. 

The corporate mentioned gross sales from its U.Ok. subsidiary, Boots, grew 3%.

When requested on the decision about Eli Lilly‘s new direct-to-consumer web site geared toward increasing entry to its weight reduction drug Zepbound, Wentworth didn’t touch upon this system particularly.

However he famous that the corporate is a “pure associate” for pharmaceutical firms that will “need to go on to sufferers for a specific product, the place the conventional provide chain, reimbursement mannequin, et cetera is not working successfully.”

For instance, Wenworth pointed to GLP-1s, a brand new class of weight reduction and diabetes medication that features Zepbound. These medication have to be taken chronically however carry hefty value tags, which could be a hurdle for each sufferers and insurance policy and different payers.

Walgreens is “uniquely positioned” to distribute medication and function a “clinically aligned associate” that may assist sufferers navigate their therapy safely, in line with Wentworth.

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