Shares of Walgreens Boots Alliance Inc. were on track for their lowest close since 2014 after the company reported fiscal second-quarter earnings that missed expectations and slashed its full-year outlook.
Shares plummeted 12% on Tuesday. Chief Executive Stefano Pessina called the quarter “the most difficult quarter we have had since the formation of Walgreens Boots Alliance WBA, -12.98% .”
Net income fell to $1.16 billion, or $1.24 a share, from $1.35 billion, or $1.36 a share, in the same period a year ago. Excluding nonrecurring items, the company said adjusted EPS declined 5.4% to $1.64, below the $1.72 that FactSet analysts were expecting.
“A number of the trends we had been expecting and preparing for impacted us significantly more quickly than we had anticipated,” Pessina said during an earnings call with analysts on Tuesday, citing “increased reimbursement pressure in the quarter, lower generic deflation, lower brand inflation and lower-than-anticipated benefits from our work to refresh and renew our retail offering, primarily in the U.S.”
Sales, which rose 4.6% to $34.53 billion, came in slightly below the FactSet consensus of $34.58 billion. Same-store retail sales in the U.S. fell 3.8%, which Walgreens blamed on a weak cough, cold and flu season, lower tobacco sales and lower sales of seasonal merchandise. U.S. pharmacy sales, which accounted for more than 70% of U.S. sales in the quarter, increased 9.8% compared with the year-ago quarter, reflecting higher prescription volumes from the acquisition of Rite Aid stores. However, same-store growth for both the company’s pharmacy and retail segments is trending below planned, said Global Chief Financial Officer James Kehoe during the earnings call.
Walgreens now expects full-year earnings for 2019 to be flat, compared with a previous forecast of 7% to 12% growth. The company said it plans to cut more than $1.5 billion in costs by fiscal 2022, an increase from the previously planned $1 billion.
In a note to clients, Evercore ISI analyst Ross Muken said Walgreens was “under siege” and called the company’s plan “uninspiring.” Jefferies health-care sector specialist Jared Holz said in another note that Walgreens’s latest results were “unsettling” and that he saw “no apparent strategy.”
The company’s poor second-quarter performance and disappointing guidance spurred speculation about future M&A opportunities. But Pessina waved that off during the earnings call, saying the company’s view remained unchanged. “We don’t see any reason to use our cash — overpaying for something — just because, as we said, of the degradation of the market,” he said.
In an increasingly challenging market, Walgreens has formed numerous partnerships in an effort to diversify its business. It paired up with grocery chain Kroger Co. KR, -2.51% to explore a pilot a program where customers can order groceries online and pick them up at participating Walgreens stores. The company took a minority stake in Birchbox Inc. in October and began selling the subscription-box company's products in select stores across the U.S. And it is working with Humana Inc. HUM, -1.77% , Sprint Corp. S, +0.62% , FedEx Corp. FDX, -1.42% and diagnostic testing firm LabCorp on services ranging from drug delivery to opening diagnostic test centers inside stores.
But those efforts may not be enough for investors.
“While the world is repositioning for a more challenging environment, WBA has basically stood still,” Holz said. “Those looking for a quick fix may not be placated by anything said today or near term.”
https://www.marketwatch.com/story/walgreens-stock-on-track-for-worst-day-since-2014-after-most-difficult-quarter-ever-2019-04-02
2019-04-02 17:04:00Z
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