Walgreens Boots (WBA) Best estimates for third quarter earnings, lack of revenue

Walgreens Boots Alliance, Inc. WBA reported adjusted earnings per share (EPS) from continuing operations of 96 cents in the third quarter of fiscal 2022, down 36.4% year-over-year (down 28.9% at constant exchange rate or CER). The figure topped Zacks’ consensus estimate of 1.1%.

GAAP EPS from continuing operations for the third quarter of fiscal 2022 was 33 cents compared to $1.27 in the prior year quarter. The metric fell 74% year over year.

Total sales

Walgreens Boots reported total sales of $32.59 billion for the fiscal third quarter, down 4.2% year-over-year and 2.8% at CER. The top line also missed the Zacks consensus estimate by 0.4%.

Quarterly details

During its first quarter fiscal 2022 earnings call, Walgreens Boots announced the creation of a new operating segment, Walgreens Health, in line with the introduction of its new consumer-centric healthcare strategy. In light of the announcement, the company split its business into three reportable segments – United States, International and Walgreens Health – at the start of the fiscal year.

United States

Segment sales totaled $26.69 billion for the fiscal third quarter, down 7.1% year-over-year.

Comparable sales increased 1.8% from the prior year quarter, reflecting a 2% increase in comparable drug store sales and a 1.4% increase in comparable retail sales.

Walgreens Boots Alliance, Inc. Price, Consensus and Surprise EPS

Walgreens Boots Alliance, Inc. price-consensus-eps-surprise-chart | Walgreens Boots Alliance, Inc. Quote

On a comparable store basis, the total number of prescriptions filled decreased 2.5% from the prior year quarter, including vaccinations adjusted to 30-day equivalents.

Drugstore sales were down 9.7% from the prior year quarter, negatively impacted by an 11 basis point (bps) headwind from AllianceRx Walgreens business.

Retail sales increased 1% and comparable retail sales increased 1.4% year over year. Same-store retail sales (excluding tobacco and e-cigarettes) also increased 2.4% from the prior year quarter.

Sales of health and wellness products rose 7.9%, supported by COVID-19 home testing and cough flu.

Personal care rose 2.6%, partially offset by beauty and consumables and general merchandise, which fell 0.4% and 1.9%, respectively.

International

International Division revenue increased 0.3% year on year and 9.3% at CER to $5.31 billion for the third fiscal quarter.

UK boot sales were up 13.5% year-on-year. Wholesale sales in Germany increased by 6.8% in the third fiscal quarter.

Boots UK comparable retail sales increased 24%, driven by market share gains across all categories, led by beauty.

However, Boots UK comparable pharmacy sales were down 0.4% year-on-year as National Health Service (NHS) comparable volume growth was more than offset by a favorable timing for the reimbursement from the NHS in the quarter of the previous year.

Walgreens Health

The Walgreens Health segment reported revenue of $596 million in the fiscal third quarter.

Within the segment, the Shields business grew 47% on a pro forma basis compared to its standalone results in the prior year quarter. The increase was driven by key contracts won, continued partnership growth and a strong focus on execution. Meanwhile, VillageMD grew 69% due to growth of existing clinics and expanding footprint.

Margins

Gross profit for the reported quarter fell 8.1% year-over-year to $6.57 billion. Gross margin contracted by 86 basis points to 20.2%.

Selling, general and administrative expenses increased 14.8% year over year to $7.02 billion.

The company reported an adjusted operating loss of $447 million in the quarter under review.

Financial condition

Walgreens Boots ended the third quarter of fiscal 2022 with cash and cash equivalents of $2.29 billion, compared to $1.89 billion recorded at the end of the second quarter of the fiscal year. Total debt was $13.46 billion at the end of the third quarter of fiscal year, compared to $13.31 billion at the end of the second quarter of fiscal 2022.

Net cash provided by operating activities at the end of the third quarter of fiscal 2022 was $3.81 billion, down from $4.31 billion in the prior year period.

The company has a 5-year annualized dividend growth rate of 4.7%.

Directions for the 2022 financial year

The company maintained adjusted EPS guidance for the full year at low single digit growth. The Zacks consensus estimate for the same is pegged at $5.06.

Our opinion

Walgreens Boots ended the third quarter of fiscal 2022 with better-than-expected earnings. The Boots business continued its recovery in the third fiscal quarter, with robust sales growth on Boots UK and Boots.com. The company saw increased online growth momentum, with digital sales up 25% in the United States. Additionally, sales contributions from the new Walgreens Health segment are raising investor optimism.

Walgreens Boots also played a significant role in COVID-19 vaccinations and testing, administering 4.7 million vaccinations and 3.9 million tests in the reported quarter and more than 16 million recalls to date. The rollout of VillageMD continued to progress well during the third fiscal quarter. VillageMD had 315 total clinics open at the end of the quarter, indicating an increase of 97 clinics over the prior year period.

Walgreens Boots’ revenue in the fiscal third quarter was below estimates and was down year-over-year. Revenue performance was impacted by lower sales at AllianceRx Walgreens. The contraction in the gross margin does not bode well. The company also reported an operating loss in the quarter, raising apprehensions.

Zacks Ranking and Key Picks

Walgreens Boots currently wear a Zacks Rank #3 (Hold).

Here are a few companies you might want to consider, as our model shows that they have the right combination of elements to show a pace of profit:

Quidel Corp. QDEL currently has an ESP on gains of +9.17%. The company sports a Zacks rank #1 (Strong Buy). You can see the full list of today’s Zacks #1 Rank stocks here.

Quidel’s earnings return of 15.44% compares favorably to the industry (-2.57%).

Quest Diagnostics Inc. DGX currently has a +5.37% Earnings ESP and sports a Zacks Rank #2 (Buy). The company is expected to release its second-quarter 2022 results on July 21, before the market opens.

Quest Diagnostics has an historic earnings growth rate of 22.4%. DGX’s earnings yield of 6.77% compares favorably to the industry’s 3.57%.

Merck & Co., Inc. MRK currently has an ESP on earnings of +19.05% and carries a Zacks rank of No. 2. Merck is expected to report Q2 2022 results on July 28, before markets open.

Merck’s long-term earnings growth rate is estimated at 10.1%. MRK’s earnings yield of 7.91% compares favorably to the industry’s 7.52%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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