Walgreens Boots lowers full-year guidance after third quarter results

The transatlantic pharmacy retailer reported adjusted earnings per share growth on the back of strong sales, but had to account for changing consumer market trends and lower demand for Covid-19-related products and services.

In terms of earnings, WBA posted earnings per share of 14 US cents for the third quarter, representing a decrease of 20 cents compared to the same period last year.

However, adjusted earnings per share increased by 3.3% to $1.00, or 3.6% on a constant currency basis, despite facing a 19.5% headwind from significantly reduced volumes of Covid-19 vaccines and testing.

The firm’s sales for the third quarter showed solid growth, increasing by 8.6% year-over-year to reach $35.4bn.

On a constant currency basis, sales growth stood at 8.9%.

During the quarter, Walgreens Boots Alliance completed the full acquisition of CareCentrix for $380m, which the board said would further expand its healthcare capabilities and market presence.

Additionally, the company realised around $1.9bn in total proceeds from the monetisation of a portion of its holdings in AmerisourceBergen, as well as the sale of its remaining shares of Option Care Health.

However, given the evolving consumer landscape and reduced demand related to the Covid-19 pandemic, Walgreens Boots Alliance revised its full-year adjusted earnings per share guidance.

The company said it now expected adjusted earnings per share in the range of $4.00 to $4.05, compared to its previous guidance of $4.45 to $4.65.

To improve profitability and drive sustainable growth in adjusted operating income for the 2024 financial year, WBA said it had taken immediate actions, including implementing $600m of incremental cost savings and raising the target for its ‘Transformational Cost Management Programme' from $3.5bn to $4.1bn in total savings.

WBA said it was also focusing on optimising its US healthcare operations to enhance profitability.

As part of that effort, the firm had increased and accelerated its synergy target for VillageMD and Summit Health to $200m by the 2026 calendar year.

Looking ahead, Walgreens Boots Alliance said it expected low- to mid-single digit growth in adjusted operating income for the 2024 fiscal period.

The growth was expected to be driven by the US healthcare and US retail pharmacy segments, with adjusted operating income outpacing adjusted earnings per share.

“WBA achieved 8.9% constant currency sales growth in the third quarter despite a challenging operating environment,” said chief executive officer Rosalind Brewer.

“Consumers continue to appreciate the value, convenience, and range of services provided by Walgreens and Boots.

“However, significantly lower demand for Covid-related services, a more cautious and value-driven consumer, and a recently weaker respiratory season created margin pressures in the quarter.”

Brewer said the revised guidance took an “appropriately cautious” forward view in light of consumer spending uncertainty, while still demonstrating drivers of a return to operating growth next fiscal year.

“We are raising our cost savings programme target to $4.1bn and taking immediate actions to optimise profitability for our US healthcare segment.

“I am confident that our turnaround strategy positions WBA to drive sustainable core growth and deliver long-term shareholder value.”

At 0759 EDT (1259 BST), shares in Walgreens Boots Alliance were down 7.09% in pre-market trading at $29.35.

Reporting by Josh White for Sharecast.com.