Friday, December 9, 2022

Walgreens (WBA) Up 13.5% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Walgreens Boots Alliance (NASDAQ:). Shares have added about 13.5% in that time frame, outperforming the .

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 the most recent earnings report in order to get a better handle on the important catalysts.

Walgreens Boots Q4 Earnings Top Estimates, Margins Down

Walgreens Bootsreported adjusted earnings per share of $1.02 for fourth-quarter fiscal 2020, down 28.7% year over year (down 27.9% at CER). However, the figure surpassed the Zacks Consensus Estimate by 6.3%.

The adjusted earnings per share reflects an adverse impact of approximately 46 cents due to the pandemic. Also, lower U.S. pharmacy gross profit and year-on-year bonus changes dragged down earnings. However, this was partially made up for by Transformational Cost Management Program savings.

GAAP earnings per share for the fourth quarter was 43 cents, reflecting a fall of 42.7% from the year-ago EPS of 75 cents.

Full-year adjusted earnings per share was $4.74, reflecting a 20.9% decline from the year-earlier $5.99. At CER, the fall was 20.6%. Again, the metric surpassed the Zacks Consensus Estimate by 1.3%.

Full-year GAAP earnings per share was 52 cents, reflecting an 87.9% decline from the year-earlier $4.31.

Total Sales

Walgreens Boots recorded total sales of $34.75 billion in the fiscal fourth quarter, up 2.3% year over year and at CER. The top-line figure exceeded the Zacks Consensus by 1.1%.

Full-year revenues were $139.54 billion, reflecting a 1.9% increase from the year-ago period (up 2.5% at CER). Revenues surpassed the Zacks Consensus Estimate by 0.3%.

The company stated that despite the pandemic-led business challenges, gradual improvement in key U.S. and U.K. markets has been observed. Also, continued strong performance in the wholesale business and accelerated growth in the e-commerce platforms 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 billion in the fiscal fourth quarter, highlighting an improvement of 3.6% year over year.

Sales in comparable stores increased 3.6% from the year-ago quarter.

Prescriptions filled in the fourth quarter rose 1.6% year over year. In comparable stores, prescriptions filled (adjusted to 30-day equivalents) increased 3.6% from the year-ago quarter.

Pharmacy sales were up 4.2% from the year-ago quarter. Comparable pharmacy sales improved 3.2% year over year.

Retail sales edged up 1.5% (including the impact of the store optimization programs).

Comparable retail sales inched up 4.7%, year on year, primarily banking on 15% growth in the health and wellness category and 8% growth in the personal care category. However, this was partly offset by a 3% fall in the beauty category. Results were boosted by increased demand for PPE and performance of the mass personalization initiative. In the reported quarter, Walgreens.com sales improved 39%.

Retail Pharmacy International

Revenues at the Retail Pharmacy International division declined 14.9% on a year-over-year basis to $2.3 billion in the fiscal fourth quarter. This included a favorable currency impact of 0.5%. Sales were down 15.4% at CER due to a 16.7% fall in Boots U.K. sales.

Boots UK’s comparable retail sales declined 29.2% at CER as footfall in stores remained significantly depressed due to COVID-19, particularly in major high street, train station and airport locations. However, there was a steady improvement in footfall in the fourth quarter compared with the third quarter.

Boots UK’s comparable pharmacy sales inched up 0.4% at CER, 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 $6 billion, up 4.3% year over year. Sales were up 4.3% at CER on growth in Germany and France.

Margins

Gross profit in the reported quarter fell 5.9% year over year to $6.80 billion. Gross margin contracted 171 basis points (bps) to 19.6%.

SG&A expenses were down 3.1% year over year to $6.21 billion.

Operating profit in the quarter was $593 million compared with operating income of $819 million a year ago, reflecting a plunge of 27.6%. Operating margin contracted 71 bps year over year to 1.7%.

Financial Condition

Walgreens Boots exited fiscal 2020 with cash and cash equivalents of $516 million compared with the $1.02 billion recorded at the end of fiscal 2019. Long-term debt was $12.20 billion at the end of fiscal 2020, up from $11.09 billion at the end of fiscal 2019.

Net cash provided by operating activities at the end of the year was $5.48 billion, down from the year-ago period’s $5.59 billion.

The company declared a quarterly dividend of 46.75 cents per share, reflecting an increase of 2.2%. This marked the 45th consecutive year of Walgreens Boots and its predecessor company, Walgreen Co., raising the dividend.

Fiscal 2021 Guidance Issued

Walgreens Boots estimates adjusted earnings per share at CER in fiscal 2021 to reflect low single-digit growth.

Although the company expects a gradual recovery from the impacts of COVID-19, the first half of the fiscal will continue to be adversely impacted. The company anticipates the second half of fiscal 2021 to reflect strong adjusted earnings per share growth as the impacts subside and recovery plans take effect in key markets.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Walgreens has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. 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 B. 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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