Walgreens Earnings Preview: What We Are Watching

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Walgreens Boots Alliance (NASDAQ:WBA) is set to announce its fiscal Q4 and full year earnings on Thursday, October 20th before the markets open. The company had a mixed fiscal Q3, with reported revenues of $29.5 billion missing consensus estimates and adjusted earnings per share (EPS) of $1.18 beating expectation. The company’s cost of revenues grew faster than revenues, which led to a 60 basis point decline in gross margins.

The table below shows consensus expectations for the company’s earnings.

Screen Shot 2016-10-12 at 15.58.46

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The company expects revenue to grow marginally for full fiscal year 2016. This growth is likely to be fueled primarily by growth in prescription sales and greater revenue from Alliance Boots as well as an increase in Medicare Part D prescriptions.

In the current fiscal year, the company has focused on improving its operating efficiencies and cutting costs. This has yielded positive results, with the company’s selling, general and administrative (S,G&A) declining from 22.8% of revenue in Q1 FY’15 to 20.2% in Q3 FY’16.

Screen Shot 2016-10-12 at 16.27.58

Walgreens’ acquisition of Rite Aid (NYSE:RAD) is still awaiting regulatory approval. The company plans to divest between 500 to 1,000 stores in order to quicken the approval process. [1] Despite the delay in approval by the FTC, the company hopes the transaction will close by the end of the year.

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Notes:
  1. Walgreens provides update on pending acquisition of Rite Aid, Walgreens IR, September 8 2016 []