Walgreens Boots (WBA) Q2 Earnings Top Estimates, EPS View Down
Walgreens Boots Alliance, Inc. WBA delivered adjusted earnings per share (EPS) of $1.20 in second-quarter fiscal 2024, surging 3.4% from the year-ago quarter’s figure (up 2.8% at constant exchange rate or CER). The figure topped the Zacks Consensus Estimate by 46.3%.
GAAP loss per share for second-quarter fiscal 2024 was $6.85 compared with the year-ago quarter’s EPS of 81 cents.
Total Sales
Walgreens Boots recorded total sales of $37.05 billion in the fiscal second quarter, up 6.3% year over year and 5.7% at CER. The top line also surpassed the Zacks Consensus Estimate by 2.3%.
Quarterly Details
The company currently operates its business into three reportable segments — U.S. Retail Pharmacy, International and U.S. Healthcare.
U.S. Retail Pharmacy
The segment’s sales totaled $28.9 billion in the fiscal second quarter, up 4.7% year over year.
Comparable sales increased 4.8% from the year-ago quarter’s levels.
Pharmacy sales were up 8.2% from the year-ago quarter’s figures and comparable pharmacy sales increased 8.7%, benefiting from higher branded drug inflation and strong execution in pharmacy services.
Retail sales fell 4.5% and comparable retail sales were down 4.3% year over year, reflecting a challenging retail environment, channel shift, and a weaker respiratory season, including a 170 basis point impact from lower seasonal and general merchandise sales, a 90 basis point direct impact from softer cold cough flu trends, and a 40 basis point impact from adverse January weather.
International
Revenues in the International division rose 6.6% on a year-over-year basis and increased 3.2% at CER to $6.00 billion in the fiscal second quarter.
Boots UK sales rose 3% year over year. In Germany, wholesale business sales increased 5.3% in the fiscal second quarter.
Walgreens Boots Alliance, Inc. Price, Consensus and EPS Surprise
Walgreens Boots Alliance, Inc. price-consensus-eps-surprise-chart | Walgreens Boots Alliance, Inc. Quote
Boots UK’s comparable retail sales increased 1.7%. However, Boots UK’s comparable pharmacy sales rose 5.9% year over year.
U.S. Healthcare
U.S. Healthcare reported fiscal second-quarter revenues of $2.20 billion. The metric was up 14% on a pro-forma basis from the year-ago quarter’s levels, led by VillageMD and Shields.
Within the segment, the Shields business rose 13%, driven by recent contract wins and further expansion of existing partnerships.
VillageMD rose 20% on a pro-forma basis, reflecting the same clinic growth and additional full-risk lives under management.
Margins
Gross profit in the reported quarter fell 0.2% year over year to $7.04 billion. Gross margin contracted 124 bps to 19%.
Selling, general and administrative expenses fell 14.2% year over year to $7.92 billion.
The company reported an adjusted operating loss of $881 million for the quarter compared with an operating profit of $121 million in the year-ago period.
Financial Condition
Walgreens Boots exited the second quarter of fiscal 2024 with cash and cash equivalents of $668 million compared with $784 million recorded in first-quarter fiscal 2024. The total debt was $9.47 billion at the end of second-quarter fiscal 2024, up from $9.28 billion at first-quarter fiscal 2024.
Net cash used by operating activities at the end of second-quarter fiscal 2024 was $918 million compared with the year-ago period’s cash inflow of $1.24 billion.
The company has a five-year annualized dividend growth rate of 1.75%.
Fiscal 2024 Guidance
The company narrowed its 2024 EPS guidance.
Adjusted EPS guidance is now expected in the $3.20-$3.35 range (down from the previous guidance of $3.20- $3.50). The current Zacks Consensus Estimate is pegged at $3.23.
Our Take
Walgreens Boots exited second-quarter fiscal 2024 with better-than-expected earnings and revenues. The company’s U.S. Healthcare business grew, led by key contract wins and continued partnership growth. During the reported quarter, VillageMD registered strong growth, reflecting existing clinic growth and additional full-risk lives under management. The company remains confident in its goal of achieving $1 billion in cost savings in 2024.
However, operating cash flow was negatively impacted by payments related to legal matters, Boots Pension Plan Annuity premium, and underlying seasonality. Escalating costs and the contraction of gross margin are a concern.
Zacks Rank & Key Picks
Walgreens Boots currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the broader medical space are Stryker Corporation SYK, Cencora, Inc. COR and Cardinal Health CAH.
Stryker, carrying a Zacks Rank #2 (Buy), reported a fourth-quarter 2023 adjusted EPS of $3.46, beating the Zacks Consensus Estimate by 5.8%. Revenues of $5.8 billion outpaced the consensus estimate by 3.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stryker has an estimated earnings growth rate of 11.5% for 2025 compared with the S&P 500’s 9.9%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average being 5.1%.
Cencora, carrying a Zacks Rank #2, reported a first-quarter fiscal 2024 adjusted EPS of $3.28, which beat the Zacks Consensus Estimate by 14.7%. Revenues of $72.3 billion outpaced the Zacks Consensus Estimate by 5.1%.
COR has an earnings yield of 5.75% compared with the industry’s 1.85%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average being 6.7%.
Cardinal Health, carrying a Zacks Rank #2, reported second-quarter fiscal 2024 adjusted earnings of $1.82, which beat the Zacks Consensus Estimate by 16.7%. Revenues of $57.45 billion improved 11.6% on a year-over-year basis and also topped the Zacks Consensus Estimate by 1.1%.
CAH has a long-term estimated earnings growth rate of 15.3% compared with the industry’s 11.8% growth. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 15.6%.
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