Walgreens Boots Alliance, Inc. WBA reported adjusted earnings per share (EPS) of $1.28 in first-quarter fiscal 2018, up 16.4% year over year and 15.5% at constant exchange rate (CER). Adjusted EPS surpassed the Zacks Consensus Estimate of $1.27 as well.
On a reported basis, net earnings came in at $821 million, reflecting a decrease of 22.1% from the prior-year quarter. Reported earnings came in at 81 cents per share, showing a 16.5% decline on a year-over-year basis.
Total Sales
Walgreens Boots recorded total sales of $30.74 billion in the fiscal first quarter, up 7.9% year over year and 7.2% at CER. The top line outpaced the Zacks Consensus Estimate of $30.33 billion.
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 $22.5 billion in the first quarter, highlighting an increase of 8.9% on a year-over-year basis. Within this segment, total sales at comparable drugstores rose 4.7%, while prescriptions filled in comparable stores grew 8.9% on account of Medicare Part D growth and volume growth from previously announced strategic pharmacy collaborations. Comparable retail sales dropped 0.9% 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 72.4% of the Retail Pharmacy USA division’s sales in the quarter, increased 14.1% from the year-ago quarter. Pharmacy sales at comparable stores rose 7.4% on higher volumes.
Revenues at the Retail Pharmacy International division rose 4.1% on a year-over-year basis (down 0.8% at CER) to $3.1 billion owing to currency fluctuations. At CER, comparable store sales in the first quarter decreased 0.7% year over year along with a 0.1% decline in comparable pharmacy sales.
The Pharmaceutical Wholesale division recorded quarterly sales of $5.7 billion, up 5.6% year over year (up 4.5% at CER).
Walgreens Boots Alliance, Inc. Price, Consensus and EPS Surprise
Walgreens Boots Alliance, Inc. Price, Consensus and EPS Surprise | Walgreens Boots Alliance, Inc. Quote
Margins
Gross profit in the reported quarter increased 3.1% year over year to $7.34 billion. However, reported gross margin contracted 100 basis points (bps) to 23.9%.
Selling, general and administrative (SG&A) expenses were up 3.9% year over year to $5.91 billion. However, adjusted operating income remained flat at $1.43 billion. Adjusted operating margin contracted 30 bps to 4.7%.
Financial Condition
Walgreens Boots exited the first quarter with cash and cash equivalents of $1.83 billion, compared with $3.30 billion at the end of fiscal 2017. Long-term debt was $12.74 billion, compared with $12.68 billion at the end of the fiscal 2017.
The company generated operating cash flow of $961 million in first-quarter fiscal 2018, compared with $525 million a year ago. The resultant free cash flow was $583 million in the quarter under review.
Guidance
Walgreens Boots has raised the low end of its outlook for fiscal 2018 by 5 cents per share and anticipates adjusted EPS of $5.45 to $5.70 compared with the previously provided range of $5.40-$5.70. The Zacks Consensus Estimate for fiscal 2018 earnings is pegged at $5.54, within the company’s guided range.
However, per management, the adjusted EPS outlook for fiscal 2018 does not include any impact from the latest U.S. tax legislation, which slashes corporate tax rates from 35% to 21%. Moreover, the guidance assumes current exchange rates for the rest of the fiscal.
Our Take
Walgreens Boots reported an impressive first quarter of fiscal 2018. We are also encouraged by the increase in sales at the Retail Pharmacy International segment. Moreover, Walgreens Boots has been gaining on account of the company’s strategic tie-ups, which brought more patients to its U.S. pharmacies.
We are also upbeat about the Rite Aid acquisition deal for which the company got regulatory approval in September 2017. 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.
Also, we are upbeat about the company expanding global footprint with its decision to acquire a 40% stake in Sinopharm Holding Guoda Drugstores Co., Ltd. (GuoDa), a subsidiary of China National Accord Medicines Corporation Ltd. On completion, this investment should provide a strong impetus to Walgreens Boots’ worldwide retail pharmacy business. Notably, Shanghai-based GuoDa is a large national pharmacy chain in China. It is the retail pharmacy platform of China National Pharmaceutical Group Corporation (CNPGC).
Moreover, the company’s acceptance of the proposal to sell part of its investment in its Chinese wholesale partner Guangzhou Pharmaceuticals Corporation for huge cash returns buoys optimism.
Zacks Rank & Key Picks
Walgreens Boots carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader medical sector are Bio-Rad Laboratories, Inc. BIO, Integer Holdings Corporation ITGR and Intuitive Surgical, Inc. ISRG.
Bio-Rad Laboratories flaunts a Zacks Rank #1 (Strong Buy). The company has a long-term expected earnings growth rate of 25% and has gained 34.8% over a year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Intuitive Surgical has a long-term expected earnings growth rate of 9.2%. The stock carries a Zacks Rank #2 (Buy) and has gained 82% in a year’s time.
Integer Holdings has a long-term expected earnings growth rate of 15%. The stock carries a Zacks Rank #2 and has gained 54.7% in a year.
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