Key Takeaways And Trends From Walgreens Q3 Results

July 9th, 2018 by Trefis Team
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Walgreens (NYSE:WBA) posted a strong performance in its recent third quarter earnings.  Net sales of the company rose to $34.3 billion, up 14% from the prior-year quarter, with adjusted earnings per share at $1.35. This was driven by bulk growth across the retail pharmacy segment and the merger with Rite Aid that took place as part of a wave of health care consolidations. 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 further strengthening the retail pharmacy market for Walgreens.
On the other hand, Store only comparable sales saw a slight downturn and fell 1.4% at its international pharmacy division and 1.2% domestically, as well as Amazon’s deal to buy medication delivery company PillPack for an undisclosed sum, sent the stock into a tailspin.
Based on the factors that affected the company’s 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 $5.90 and $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.
 

Key trends from Walgreens’ first quarter earnings are outlined below:

Walgreens’ Business Receives A Major Boost From the recent Acquisition of  Rite Aid stores – The recent acquisition of stores from Rite Aid has provided a major boost to Walgreens business in Q3. The combination provides consumers with a more integrated experience, reduced costs, and improved access to health care experts in homes. This has combined Walgreens’ dense local presence through pharmacies and Rite Aid’s health care benefits and services.

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Retail Pharmacy segments and Pharmaceutical Wholesale segments continue to perform well – For Retail USA and Retail International Pharmacy segment, the company had decent revenue growth of 15% and 6.6% y-o-y, respectively, in this quarter primarily due to higher prescription volume including central specialty and mail following the acquisition of Rite Aid stores, and Internationally due to favorable currency translation.  The growth for this segment has continued to 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 has also boosted results.

In its Pharmaceutical Wholesale Services segment, Walgreens grew 12.6% y-o-y in the previous quarter. Certain factors that have aided growth in this segment include network claims, brand inflation, and growth in specialty pharmacy. This segment saw strong performance in emerging markets and the UK.

Growth in Online Sales – 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.

Looking ahead, we believe that driven by the above trends, the company will drive growth, bringing more patients to our U.S. pharmacies through the recent acquisition of Rite Aid stores, and through other strategic partnerships, with steadier footing this coming year.

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