Biotech
Thursday, January 4th, 2024 4:33 pm EDT
Key Points
- Walgreens Stock Decline and Dividend Cut: Walgreens witnessed a significant decline in its stock value, with shares falling more than 11% after the company reported fiscal first-quarter adjusted earnings and revenue that exceeded expectations. Despite the positive financial performance, the retail pharmacy giant announced a nearly 50% reduction in its quarterly dividend, cutting it from 48 cents to 25 cents per share. This decision, the first dividend cut in nearly five decades, aims to strengthen the company’s long-term balance sheet and cash position, according to CEO Tim Wentworth. The dividend yield is now 3.9%, down significantly from its previous yield of over 7%, making it the highest-paying dividend stock in the Dow Jones Industrial Average.
- Financial Performance and Turnaround Efforts: Walgreens’ fiscal first-quarter results indicated a turnaround from the challenges it faced in 2023. Despite a 30% decline in shares last year, attributed to weakening demand for Covid products, low pharmacy reimbursement rates, online retail pressure, labor unrest, and an uneven push into healthcare, the company reported positive financial metrics. Adjusted earnings per share were 66 cents, beating expectations, and revenue reached $36.71 billion, marking a 10% increase from the same period a year ago. Walgreens is undergoing significant investments to transform from a major drugstore chain to a large healthcare company, with a focus on its U.S. retail pharmacy and international business segments.
- Future Outlook, Challenges, and Cost-Cutting Initiatives: Despite the positive quarterly results, Walgreens reiterated its fiscal 2024 adjusted earnings guidance of $3.20 to $3.50 per share. Executives highlighted both tailwinds and headwinds in a challenging environment. While expecting better performance from the pharmacy services unit due to favorable tax rates, the company anticipates hurdles such as lower market growth in prescriptions and reduced sale and leaseback contributions. A pullback in consumer spending is also anticipated to impact U.S. retail sales in the short term, with an expected improvement in the second half of the fiscal year. Walgreens is on track to achieve $1 billion in cost savings during fiscal 2024 through ongoing cost-cutting initiatives, including store closures, layoffs, and the use of artificial intelligence for supply chain efficiencies.
Walgreens witnessed a significant drop in its stock value, with shares falling over 11% following its fiscal first-quarter report. While the company’s adjusted earnings and revenue exceeded expectations, it announced a nearly 50% reduction in its quarterly dividend, cutting it from 48 cents to 25 cents per share to enhance its long-term balance sheet and cash position. This decision by CEO Tim Wentworth marks the company’s first dividend cut in nearly five decades. The move, deemed “incredibly important and responsible,” aims to provide additional capital for investment in the core business, stimulating growth, according to Wentworth. Walgreens’ dividend yield has now decreased to 3.9%, down significantly from its prior yield of over 7%, making it the highest-paying dividend stock in the Dow Jones Industrial Average.
Despite facing challenges in 2023, including weakening demand for Covid products, low pharmacy reimbursement rates, and increased pressure from online retailers, Walgreens reported a turnaround from the previous year. The fiscal first-quarter earnings beat expectations, with adjusted earnings per share at 66 cents and revenue at $36.71 billion. The net loss of $67 million contrasts sharply with the $3.7 billion loss in the same period a year ago, attributed to a multibillion-dollar settlement related to the opioid crisis. The recent net loss includes a $278 million after-tax charge linked to Walgreens’ forward sale of shares of drug distributor Cencora (formerly AmerisourceBergen).
Walgreens continues its transformation from a major drugstore chain to a large healthcare company, emphasizing significant investments. While the company achieved sales growth in its U.S. retail pharmacy and international business segments, as well as its U.S. healthcare division, it reiterated its fiscal 2024 adjusted earnings guidance of $3.20 to $3.50 per share. Executives acknowledged both favorable and challenging factors in the fiscal year, including better performance in the pharmacy services unit due to more favorable tax rates, but hurdles like lower market growth in prescriptions and decreased consumer spending.
The company anticipates achieving $1 billion in cost savings during fiscal 2024 through ongoing cost-cutting initiatives involving store closures, layoffs, and the use of artificial intelligence for supply chain efficiencies. Walgreens’ U.S. retail pharmacy segment experienced sales growth, with comparable sales at pharmacy locations rising 8.1%. Pharmacy sales increased by 10.7%, driven by price inflation in brand medications and robust execution in pharmacy services. However, retail sales fell 6.1% due to weaker respiratory seasons, macroeconomic-driven consumer trends, and Thanksgiving holiday store closures. The international segment, operating over 3,000 retail stores abroad, reported a sales rise of over 12% to $5.83 billion. The U.S. health-care segment’s revenue reached $1.93 billion, reflecting the impact of VillageMD’s acquisition of Summit Health and growth across all businesses in the segment.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/01/04/walgreens-wba-earnings-q1-2024.html
