Biotech
Thursday, October 12th, 2023 2:02 pm EDT
Key Points
- Earnings Miss and Profit Guidance: Walgreens reported fiscal fourth-quarter earnings that were below Wall Street’s expectations. This comes as demand for Covid vaccines and tests declined in the U.S. The company expects adjusted earnings per share for the coming fiscal year to be in the range of $3.20 to $3.50, which is lower than analysts’ estimates. Walgreens attributes this to factors such as lower Covid-related sales, a higher tax rate, and reduced sale and leaseback contributions, impacting earnings growth.
- Transition and Challenges: Walgreens is undergoing a transition from a major drugstore chain to a large healthcare company. Despite its strategic investments in healthcare, the company is facing challenges. These include a profit squeeze due to softer consumer spending and reduced demand for Covid-related products as the pandemic’s impact wanes. Additionally, the retail giant is dealing with labor pressures, including a recent walkout by pharmacists and pharmacy technicians protesting understaffing and poor working conditions.
- Segment Performance: Despite the earnings miss, Walgreens reported sales growth in several segments. The U.S. retail pharmacy segment saw an increase in sales, particularly in pharmacy sales, driven by price inflation in brand medications. However, total prescriptions filled declined due to a weaker respiratory virus season. The international segment, including the U.K. subsidiary Boots, also achieved substantial sales growth. In its healthcare segment, Walgreens noted growth in primary-care provider VillageMD and CareCentrix, which coordinates home care for patients. The company is working on cost-cutting initiatives, which are expected to result in over $1 billion in savings in the next fiscal year. The firm plans to focus on more profitable growth in 2024 in its healthcare segment.
Walgreens reported fiscal fourth-quarter earnings that fell short of expectations as the demand for Covid vaccines and tests in the U.S. declined. The company has been facing challenges, including the transition out of the Covid pandemic, a leadership shake-up, and its push into healthcare. It also experienced labor pressure from pharmacy staff, some of whom staged a three-day walkout in protest of understaffing and working conditions. Walgreens has underperformed Wall Street’s adjusted earnings expectations for two consecutive quarters, something that hasn’t happened in nearly a decade. However, it did report narrower losses and sales growth in its health care business.
Despite the earnings miss, the company has made investments to transform from a drugstore chain into a larger healthcare entity. It is focused on accelerating the profitability of its U.S. health-care division. The firm’s U.S. retail pharmacy segment generated $27.66 billion in sales during the fiscal fourth quarter, with pharmacy sales increasing due to price inflation in brand medications. However, total prescriptions filled decreased by 0.5% due to a weaker respiratory virus season, affecting demand for medications and vaccines.
The company’s international segment saw sales growth, particularly in its U.K. subsidiary, Boots. Walgreens reported a loss of $30 million in its health-care segment before interest, tax, depreciation, and amortization. While the segment showed improvement, it aims to focus on more profitable growth in 2024.
Walgreens is preparing for leadership changes as health-care industry veteran Tim Wentworth is set to become the new CEO, taking over on October 23. The company anticipates a challenging year ahead due to continued Covid-related sales, a higher tax rate, and other factors, which may affect its earnings. The ongoing cost-cutting initiative, including store closures and AI-driven supply chain efficiencies, is expected to result in over $1 billion in savings for the next fiscal year. The stock of Walgreens, which had been down more than 39% for the year, saw a slight increase during early trading.
For full original article on CNBC, please click here: https://www.cnbc.com/2023/10/12/walgreens-wba-earnings-q4-2023.html
