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Why Is Walgreens (WBA) Up 10.1% Since Last Earnings Report?

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Zacks Equity Research
·5 min read
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A month has gone by since the last earnings report for Walgreens Boots Alliance (WBA). Shares have added about 10.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Walgreens due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Walgreens Boots Q1 Earnings Top Estimates, Margins Down

Walgreens Boots reported adjusted earnings per share of $1.22 for first-quarter fiscal 2021, down 11.2% year over year (down 11.6% at constant exchange rate or CER). However, the figure surpassed the Zacks Consensus Estimate by 19.6%.

The adjusted earnings per share reflects an adverse impact of approximately 26-30 cents due to the pandemic. However, this was partially made up for by Transformational Cost Management Program savings.

GAAP loss per share for first-quarter fiscal 2021 was 36 cents compared to the year-ago earnings per share of 95 cents.

Total Sales

Walgreens Boots recorded total sales of $36.31 billion in fiscal first quarter, up 5.7% year over year and up 5.2% at CER. The top line exceeded the Zacks Consensus Estimate by 3.9%.

The company stated that despite the pandemic-led business challenges, its top line was boosted by strength in the company’s Retail Pharmacy USA and Pharmaceutical Wholesale businesses. Also, accelerated growth in the Boots.com platform boosted the top line.

Segments in Detail

Walgreens Boots reports through three segments — Retail Pharmacy USA, Retail Pharmacy International and Pharmaceutical Wholesale.

Retail Pharmacy USA

The segment’s sales totaled $27.16 billion in fiscal first quarter, highlighting an improvement of 3.9% year over year.

Sales in comparable stores increased 3.7% from the year-ago quarter, which reflects a 5% uptick in comparable pharmacy sales and a 0.4% growth in comparable retail sales.

Total prescriptions (adjusted to 30-day equivalents) filled in the first quarter rose 1.1% year over year. In comparable stores, prescriptions filled increased 2.7% from the year-ago quarter.

Pharmacy sales were up 5.9% from the year-ago quarter. Comparable pharmacy sales improved 5% year over year.

Retail sales declined 2.2% (including the impact of the store optimization programs).

Comparable retail sales inched up 0.4%, year on year. The soft sales primarily resulted from significantly weaker cough, cold and flu season. Comparable retail sales (excluding tobacco and e-cigarettes) edged up 1.9%.

Retail Pharmacy International

Revenues at the Retail Pharmacy International division declined 6.2% on a year-over-year basis to $2.57 billion in fiscal first quarter. This included a favorable currency impact of 1.9%. Sales were down 8.2% at CER mainly due to a 11.5% fall in Boots U.K. sales due to pandemic-led disruptions.

Boots UK’s comparable retail sales declined 9.1% as footfall in stores remained significantly depressed due to COVID-19, particularly in major high street, train station and airport locations.

Boots UK’s comparable pharmacy sales inched up 2.5%, mainly due to favorable timing on National Health Service reimbursement. This mitigated the impact of lower prescription volume and reduced demand for pharmacy services during the pandemic.

Pharmaceutical Wholesale

The division’s quarterly sales were $7.13 billion, up 18.6% year over year. Sales were up 16.3% at CER, which included impacts of the company's latest joint venture in Germany, (consolidated as of November).

Margins

Gross profit in the reported quarter fell 1.7% year over year to $7.14 billion. Gross margin contracted 149 basis points (bps) to 19.7%.

Selling, general and administrative (SG&A) expenses were down 0.9% year over year to $6.21 billion.

Operating profit in the quarter was $932 million compared with operating income of $1 billion a year ago, down 6.8% year over year. Operating margin contracted 35 bps year over year to 2.6%.

Financial Condition

Walgreens Boots exited the first quarter of fiscal 2021 with cash and cash equivalents of $1.11 billion compared with $516 million recorded at the end of fiscal 2020. Total debt was $16.22 billion at the end of the first quarter of fiscal 2021, up from $15.74 billion at the end of fiscal 2020.

Net cash provided by operating activities at the end of the first quarter of fiscal 2021 was $1.19 billion, up from the year-ago period’s $1.06 billion.

Fiscal 2021 Guidance

Walgreens Boots continues to maintain its estimates of low single-digit growth in adjusted earnings per share at CER in fiscal 2021. The Zacks Consensus Estimate for the same is currently pegged at $4.79.

Although the company anticipates higher adverse impacts of the pandemic-led disruptions (including a weaker cough, cold and flu season) during the second quarter of fiscal 2021, the adjusted earnings per share during the first half of fiscal 2021 is likely to be in line with the company’s earlier expectations.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -8.19% due to these changes.

VGM Scores

Currently, Walgreens has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was 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.

Outlook

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


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