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Walgreens Boots (WBA) Tops Q4 Earnings, Issues 2018 View

Walgreens Boots Alliance, Inc. WBA reported adjusted earnings per share (EPS) of $1.31 in fourth-quarter fiscal 2017, up 22.4% year over year. Adjusted EPS surpassed the Zacks Consensus Estimate of $1.22.

On a reported basis, net earnings came in at $802 million, reflecting a decrease of 22.1% from the prior-year quarter. Reported earnings came in at 76 cents per share, showing a 20% decline on a year-over-year basis.

For full-year 2017, adjusted EPS came in at $5.10, up 11.1% from the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of $5.01.

Total Sales

Walgreens Boots recorded total sales of $30.15 billion in the fiscal fourth quarter, up 5.3% year over year and up 6.4% at constant exchange rate (CER). The top line outpaced the Zacks Consensus Estimate of $30.05 billion.

Fiscal 2017 sales totaled $118.21 billion, up 0.7% from the year-ago period.  Moreover, the figure beat the Zacks Consensus Estimate of $118.16 billion by a slight margin.

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

 

Segments in Detail

Walgreens Boots currently reports under three operating segments: Retail Pharmacy USA, Retail Pharmacy International and Pharmaceutical Wholesale.

The Retail Pharmacy USA division recorded sales of $22.3 billion in the fourth quarter, highlighting an increase of 7.5% on a year-over-year basis. Within this segment, total sales at comparable drugstores rose 3.1%, while prescriptions filled in comparable stores grew 8.7% on account of Medicare Part D growth and volume growth from previously announced strategic pharmacy collaborations. Comparable retail sales dropped 2.1% due to lower sales at the consumables and general merchandise category and the personal care category, partially offset by increased sales in the health and wellness as well as beauty categories.

Pharmacy sales, which accounted for 72.1% of the Retail Pharmacy USA division’s sales in the quarter, increased 12.6% from the year-ago quarter, and pharmacy sales at comparable stores rose 5.6% on higher volumes.

Revenues at the Retail Pharmacy International division declined 3.2% on a year-over-year basis (down 0.4% at CER) to $2.9 billion owing to currency fluctuations. At CER, comparable store sales in the fourth quarter decreased 0.2% year over year, while comparable pharmacy sales increased 0.5% led by growth in the U.K.

The Pharmaceutical Wholesale division recorded quarterly sales of $5.4 billion, up 0.8% year over year (up 5.4% at CER).

Margins

Gross profit in the reported quarter declined 2.6% year over year to $7.34 billion. Accordingly, reported gross margin contracted 70 basis points (bps) to 24.3%.

Selling, general and administrative (SG&A) expenses were up 2.8% year over year to $6.22 billion. However, adjusted operating income increased 1.4% to $1.12 billion as the rise in revenues outweighed the increase in operating expenses. In contrast, adjusted operating margin contracted 20 bps to 3.7%.

Financial Condition

Walgreens Boots exited fiscal 2017 with cash and cash equivalents of $3.30 billion, compared with $9.81 billion at the end of fiscal 2016. Long-term debt was $12.68 billion, compared with $18.71 billion at the end of the prior fiscal.

The company generated operating cash flow of $7.25 billion in fiscal 2017 compared with $7.85 billion a year ago. The resultant free cash flow was $5.9 billion in fiscal 2017.

Guidance

Walgreens Boots has issued the fiscal 2018 guidance. The company expects adjusted EPS in the $5.40-$5.70 range for the fiscal. The current Zacks Consensus Estimate for fiscal 2017 earnings is pegged at $5.48, within but near to the lower end of the company’s guided range.

Our Take

Walgreens Boots reported an impressive fourth quarter of fiscal 2017 with both earnings and sales surpassing the Zacks Consensus Estimate. However, declining sales at the Retail Pharmacy International was a disappointment. Nevertheless, Walgreens Boots has been gaining on account of the company’s strategic tie-ups which brought more patients to its U.S. pharmacies.

In September, Walgreens Boots announced the receipt of U.S. Federal Trade Commission (FTC) approval for the purchase of 1,932 stores, three distribution centers and related inventory from Rite Aid for a total of $4.375 billion. Synergies of $300 million are expected to be realized within four years of initial closing of the transaction, achieved majorly from procurement, cost savings and other operational areas. 

Per Walgreens Boots, this modified merger contract is in line with its growth strategy and offers additional operational benefits. It will also help the company expand and optimize retail pharmacy network in key U.S. markets, including the Northeast.

Zacks Rank & Key Picks

Currently, Walgreens Boots has a Zacks Rank #4 (Sell).

A few better-ranked stocks in the broader medical sector are PetMed Express, Inc. PETS, Abbott ABT and Intuitive Surgical, Inc. ISRG. Notably, PetMed sports a Zacks Rank #1 (Strong Buy), while Abbott and Intuitive Surgical carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed reported EPS of 43 cents in the second quarter of fiscal 2018, up 79.2% from the year-ago quarter’s 24 cents. Also, gross margin expanded 548 bps year over year to 35.2% in the reported quarter.

Abbott reported third-quarter 2017 adjusted earnings from continuing operations of 66 cents per share, up 11.9% year over year. Also, third-quarter worldwide sales came in at $6.83 billion, up 28.8% year over year. 

Intuitive Surgical posted adjusted earnings of $2.77 per share in the third quarter of 2017, up 34.5% on a year-over-year basis. Also, revenues increased 18% year over year to $806.1 million.

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Walgreens Boots Alliance, Inc. (WBA): Free Stock Analysis Report
 
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