Walgreens Q1 Earnings Review: Currency Fluctuations Impact Top Line, EPS Beats Estimates
Walgreens Boots Alliance (NASDAQ:WBA) announced mixed first quarter earnings on Thursday, January 5th. For the quarter ending November 30th, the company’s revenue declined 1.1% to $28.5 billion over the prior-year quarter, missing the Reuters compiled revenue estimates of $29.2 billion. The decline in revenue was primarily due to unfavorable exchange rates. On a constant currency basis, the company’s revenue rose 1%. The company’s operating income declined 1.4% to $1.4 billion on a year-over-year (y-o-y) basis while its operating margin grew marginally, driven by lower cost of sales and lower selling, general and administrative (SG&A) expenses. The company’s net income declined 5% to about $1 billion or 97 cents per share. On an adjusted basis, the company’s net income per share was $1.10 and exceeded analyst expectations of $1.09. This was the fifth straight quarter in which the company missed the revenue estimates but exceeded EPS estimates.
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The Retail Pharmacy U.S. division reported revenue of $20.7 billion in the first fiscal quarter, an increase of 1.4% y-o-y driven by higher comparable store sales. Pharmacy sales increased 2.5% over the prior year quarter due to higher script volumes and higher sales of specialty drugs, while retail sales declined 0.9%. The number of prescriptions filled (187.2 million) remained almost flat over the prior year quarter (186 million). Prescriptions filled on a 30-day period increased 3.4% to 237.6 million. The rise in prescriptions filled helped the company increase its market share by 40 basis points over the prior year quarter to 19.5%.
The segment’s operating income rose 7.5% to $1.1 billion, primarily driven by increased pharmacy volumes, procurement efficiencies and cost control measures. The company’s cost transformation program continues to pay dividends, as evident by the decrease in SG&A expenses as a percentage of revenue. For the quarter ended November 30th, the segment’s S,G&A expenses as a percentage of revenue was 21%, against the prior year quarter’s figure of 21.7%.
Currency fluctuations had the biggest impact on the Retail International division’s revenue, which declined 14.4% over the prior year quarter to $3 billion. However, on a constant currency basis, revenue was about flat relative to the prior year quarter. This was primarily due to a weak performance in the U.K.
Rite Aid Acquisition
Walgreens remains engaged in discussions with regulatory bodies for the approval of its pending acquisition of Rite Aid, and hopes to complete the acquisition in the early part of this year.
Going forward, the company expects Rite Aid to be accretive to earnings in the first year post-acquisition. For 2017, the company expects to generate EPS of $4.90 to $5.20 per share, which includes $0.05 to $0.12 from Rite Aid.
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