What To Expect From Walgreens’ Q3 Earnings
Walgreens (NYSE:WBA) is scheduled to release its third quarter results on June 28. The company posted healthy growth in its second quarter as Walgreens, CVS, and Rite Aid were in the midst of their mergers as part of a wave of health care consolidations took place. The company posted a 12.1% growth in sales, reporting $33.02 billion, with diluted EPS at $1.36, up 38.8% y-o-y. Several planned developments, early benefits of new pharmacy contracts, as well as an increase in volume owing to previously announced pharmacy partnerships, have been driving growth in this space over the past few quarters. Rising expenditures on prescription drugs and growing demand for specialty drugs have been strengthening the retail pharmacy market for Walgreens.
In the upcoming earnings announcement, we anticipate the company to continue to post healthy growth driven by comparable prescription growth and benefit from strength in retail prescriptions. For full year 2018 earnings, the company management has forecast it to grow between the band of $5.85 to $6.05, this includes a Trump tax cut benefit that is slightly higher than 35 cents from the upper end of its prior target. Please refer to our dashboard analysis on Walgreens.
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The factors below will likely play a key role in Walgreens’ Q3 results.
Retail Pharmacy segments and Pharmaceutical Wholesale segments will continue to perform well – For Retail USA and Retail International Pharmacy segment, the company had decent revenue growth of 12.2% and 7.0% y-o-y, respectively, in the previous quarter primarily due to higher prescription volume including central specialty and mail following the formation of AllianceRx Walgreens Prime, and from the acquisition of Rite Aid stores, and Internationally due to currency translation. In the upcoming Q3 growth for this segment will follow an upward trend driven by solid same store script growth as a result of partnerships established with Rite Aid. Increased participation as a pharmacy in Medicare Part D networks will also boost results.
In its Pharmaceutical Wholesale Services segment, Walgreen grew 14.4% y-o-y in the previous quarter. Certain factors that have aided growth in this segment and are likely to favor it include network claims, brand inflation, and growth in specialty pharmacy. This segment saw strong performance in emerging markets.
Walgreens Boots Alliance has also been in talks to buy AmerisourceBergen. In the latest sign of a fast-consolidating, and fast-evolving, health care market, AmerisourceBergen is a global network of companies that works across the healthcare supply chain to deliver drugs to pharmacies and patients, acts as a distributor, logistics manager, and even liaison between drug developers and legislators. It is one of the biggest drug distributors in the U.S. and hence if this deal materializes, will be a great boost for Walgreens’ business.
Digital platforms to aid sales growth – The company’s efforts to boost its digital capabilities have started paying off. In this regard, more than 20% of the company’s retail refill scripts were initiated through digital channels with the Walgreens’ mobile app, having been downloaded in excess of 50 million times since the launch. The growth through the digital platform should continue to aid the top line in the coming earnings and beyond, too.
All in all, we expect Walgreens to post healthy growth in the coming Q3 2018 earnings.
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