Industry headwinds bring WBA a ‘soft’ start to 2020 in Q1

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Industry headwinds bring WBA a ‘soft’ start to 2020 in Q1

By David Salazar - 01/08/2020

Walgreens Boots Alliance posted results for the first quarter of its fiscal year 2020, missing Wall Street estimates as headwinds stymied solid pharmacy sales increases in the United States and international challenges affected overseas operations. Net earnings were 95 cents per share, down 19.8% from the prior-year period as the company saw what executive vice chairman and CEO Stefano Pessina described as a “slow start” to the year on a call with analysts. 

“We are maintaining our outlook for the year despite a soft first quarter,” Pessina said. “We are confident our strategic plans are the right ones to drive long-term sustainable growth going forward. In addition, during the quarter we were very satisfied with the progress made in our Transformational Cost Management Program and with the strong cash flow we delivered.”

The company’s retail pharmacy USA division saw revenue rise by 1.6% to $26.1 billion as pharmacy sales grew by 2.9% over the prior-year period. The company attributed pharmacy sales growth to increasing brand inflation, higher volume and strong specialty growth, with comparable-store pharmacy sales up 2.5% from Q1 2019. Total, the division filled 294 million prescriptions, including immunizations, adjusted to 30-day equivalents — a 1.4 increase over a year ago. Walgreens’ retail prescription market share dropped by roughly 55 basis points compared with the prior-year period, sitting at 20.9%, which the company said is in-line with Q4 2019 and includes the impact of store optimizations. 

Front-end sales in the retail pharmacy USA division decreased by 2.2%, with comps down 0.5% — which WBA attributed to its continuing to de-emphasize the tobacco category. Gross profit for the division decreased by 5.2% compared with the prior-year period, which the company attributed to continued year-on-year reimbursement pressure. Operating income for the quarter totaled $848 million, a 27.3% decrease from the prior-year period. 

Internationally, the company faced further headwinds. WBA’s retail pharmacy international segment revenue decreased 5.4% from the prior-year period to $2.7 billion, which included a 2.7% adverse currency impact and reflected lower Boots UK retail sales and lower sales in Chile as the country saw social unrest. Comparable pharmacy sales increased by 0.6% on a constant-currency basis and comparable retail sales decreased by 3% on a constant-currency basis as Boots UK held its share in a challenging market. Operating income for the division decreased 43.7% to $44 million. 

WBA’s pharmaceutical wholesale performed well in Q1, with sales growing by 5.2% over the year-ago period to $6 billion, which included an adverse currency impact of 3%. Growth was attributed largely to emerging markets and the United Kingdom. The division’s operating income was $122 million for the quarter, which included $13 million in equity earnings from the company’s stake in AmerisourceBergen. The prior-period operating income was $155 million and reflected $39 million in equity earnings from AmerisourceBergen. 

Executives remain committed to the company’s guidance of roughly flat adjusted earnings per share at constant currency rates, with a range of plus or minus 3%. They noted that WBA has made progress on its four areas of focus — accelerating digitization, transforming and restructuring its retail offering, creating neighborhood health destinations, and its cost-management efforts. 

Among the highlights the company focused on were WBA and McKesson’s plan to form a German joint venture combining their wholesale operations, Walgreens’ and Kroger’s newly formed group purchasing organization aimed at bringing benefits and cost savings on owned-brand sourcing, continued growth of No7 in the United States and the opening of the first two of five VillageMD primary care clinics in Houston.