What To Expect From Walgreens’ Earnings
Walgreens Boots Alliance (NASDAQ:WBA) is set to announce its fiscal Q2 earnings on Wednesday, April 5th. The company had a mixed start to fiscal 2017 (year ends August), with revenues dipping 1.1% to $28.5 billion and earnings per share (EPS) declining 5% to 97 cents a share in Q1. On an adjusted basis, the company’s EPS was $1.10, slightly higher than the market expectations. The first quarter of the current fiscal year was the fifth straight quarter in which the company missed revenue expectations but exceeded EPS estimates.
In the upcoming results for the quarter ended February, the consensus expectation is for Walgreens to report revenues of $30.3 billion, implying growth of 0.4% over the same period last year. On the EPS front, the company is expected to generate EPS of $1.36, which would imply growth of almost 4% over prior year quarter.
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- What To Expect From Walgreens’ Q2?
Walgreens expects the revenue growth to be driven by a strong performance from the Retail Pharmacy business, both in the U.S. and internationally. At the same time, the company is expected to reap the benefits of its cost transformation program, which should keep the company’s expenses under control and inflate its bottom line.
The three year program is expected to bring in $1.5 billion in cost savings by the end of fiscal 2017. The cost saving measures, primarily aimed at improving the operations of the Retail Pharmacy USA division, involved closing stores in the U.S., reorganizing operations, improving information and technology services and enhancing operational efficiency. Under the program, the company has been able to bring down its selling, general and administrative expenses as a percentage of revenues from almost 23% in Q1 FY 2015 to 20% in Q1 FY 2017. We expect this trend to continue in the upcoming results.
Additionally, Walgreens’ proposed acquisition of Rite Aid will likely be in focus, as it is still awaiting regulatory approval. The earlier plan of divesting 865 stores and assets for $950 million to Fred’s didn’t meet regulatory expectations, forcing the company to revise the terms of the merger. Per the latest terms announced in January, Walgreens will pay $6.50 to $7 per share, compared to the $9 it proposed earlier and will divest between 1,000 and 1,200 stores. We expect Fred’s to be a key player in the Walgreens – Rite Aid deal, and expect Walgreens to provide some color on any developments related to the merger.
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