Walgreen Co.(WAG), popularly known as Walgreens, is scheduled to report its first-quarter fiscal 2015 results before the opening bell on Dec 23.
In the last reported quarter, the drug retail giant delivered in-line earnings. However, Walgreens has underperformed the Zacks Consensus Estimate in two of the four preceding quarters with a negative earnings surprise average of 1.34%. Let's see how things are shaping up for this announcement.
Factors at Play
As reported in the company's November sales release, Walgreens' total sales reached $19.59 billion in the first quarter of fiscal 2015, recording growth of 6.8% year over year and comfortably ahead of the Zacks Consensus Estimate of $19.34 billion.
Moreover, the company reported a 5.8% and 1.5% increase in comparable store and front-end comparable store sales for the quarter, respectively. Additionally, Prescriptions filled at comparable stores and comparable pharmacy sales also improved 4.2% and 8.3%, respectively, during the first quarter.
However, unfortunately, Walgreens expects its adjusted gross margin contraction to persist in the yet-to-be-reported first quarter results. The gross margin had deteriorated by 98 basis points in the last reported fourth quarter fiscal 2014. According to the company, the negative factors affecting pharmacy margins will outweigh the benefits that Walgreens expects from introduction of new generic drugs and front-end margin improvement, and eventually lead to a gross margin contraction in the first quarter of fiscal 2015.
Currently, for the quarters ahead in fiscal 2015, management at Walgreens expects to continue to drive sales and margin growth on the front-end, offering the best standards in customer loyalty and customer care, with focus on integrating health, beauty and convenience.
So far, Walgreens' partnership with Alliance Boots has been yielding positive results and the company expects this joint synergy program to deliver approximately $650 million in fiscal 2015. Moreover, the company's deal with AmerisourceBergen Corporation (ABC), likely to create a leader in the generic and branded drug purchasing space, is another major upside. We look forward to these new ventures at Walgreens and expect them to complement the company's growth profile, going forward.
Earnings Whispers?
Our proven model does not conclusively show that Walgreens is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Earnings ESP for Walgreens is 0.00%, as both the Most Accurate estimate and the Zacks Consensus Estimate stand at 74 cents.
Zacks Rank: Walgreens has a Zacks Rank #3 (Hold) which increases the predictive power of ESP. However, when combined with a 0.00% ESP, it makes surprise prediction difficult.
Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
Here are two other companies that have the right combination of elements to post an earnings beat this quarter:
Edwards Lifesciences Corp. (EW) has an earnings ESP of +1.06% and a Zacks Rank #2 (Buy).
Wright Medical Group Inc. (WMGI) has an earnings ESP of +3.85% and a Zacks Rank #3.
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