How Walgreens Boots Alliance Beat Expectations in Q1

Walgreens Boots Alliance (NASDAQ:WBA) won a dubious prize last year: It ranked among the three worst-performing stocks in the Dow Jones index. But 2020 is now thankfully in the past. And Walgreens’ prospects are looking better in the new year.

Anyone who doubted this was proven wrong on Thursday. Walgreens announced its fiscal 2021 first-quarter results for the quarter ending Nov. 30, 2020, before the market opened. Here are the highlights from the pharmacy giant’s Q1 update.

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By the numbers

Walgreens generated Q1 revenue of $36.3 billion, a 5.7% increase from the $34.3 billion reported in the prior-year period. The company’s revenue easily topped the average analyst’s estimate of $34.95 billion.

Walgreens reported a net loss in the first quarter of $308 million, or $0.36 per share, based on generally accepted accounting principles (GAAP). This reflected deterioration from last year’s Q1, when the company announced net income of $845 million, or $0.95 per share.

On an adjusted (non-GAAP) basis, Walgreens’ Q1 net income totaled $1.1 billion, or $1.22 per share. This was lower than the adjusted earnings of $1.2 billion, or $1.37 per share, posted in the prior-year period. However, it blew past the consensus Wall Street estimate of adjusted earnings of $1.03 per share.

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Behind the numbers

Walgreens’ retail pharmacy USA segment is its biggest moneymaker. It generated sales of $27.2 billion in fiscal Q1, up 3.9% year over year. The COVID-19 pandemic weighed on customer traffic in stores. In addition, sales were negatively impacted by a relatively mild cough, cold, and flu season.

However, the retail pharmacy USA business was boosted by pharmacy sales, which jumped 5.9% year over year. These sales accounted for nearly 77% of the segment’s total sales in Q1. Also, retail sales for health and wellness products (excluding the impact of the milder cough, cold, and flu season) increased by 11.6%.

The best performance in Walgreens’ Q1 results came from its pharmaceutical wholesale business. Sales for the unit soared 18.6% year over year to $7.1 billion. This solid increase was due in part to the company’s joint venture with McKesson in Germany. 

On the other hand, Walgreen’s retail pharmacy international segment continued to be its worst-performing business. First-quarter sales fell 6.2% year over year to $2.6 billion. On a constant currency basis, the decline was even worse — 8.2%.

The COVID-19 pandemic was a major culprit behind the weak performance for the retail pharmacy international business. Boots UK same-store retail sales sank 9.1% compared to the year-ago period due in large part to reduced traffic in major high street, train station, and airport stores.

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The company’s GAAP bottom line in Q1 was negatively impacted by a $1.73-per-share charge related to its position in AmerisourceBergen. Walgreens’ adjusted earnings per share were weighed down by an adverse impact from the pandemic estimated to be between $0.26 and $0.30 per share.

Looking ahead

Walgreens maintained its 2021 outlook of adjusted EPS growth in the low single digits. The company also expects that it will have a more significant negative impact from the pandemic in fiscal Q2.

While COVID-19 definitely remains a headwind for the healthcare stock, Walgreens will also benefit in some ways. For example, it’s helping vaccinate residents and staff of long-term care facilities. As more Americans receive the COVID-19 vaccines this year, customer traffic in the company’s retail pharmacy stores could increase.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.


View more information: https://www.fool.com/investing/2021/01/07/how-walgreens-boots-alliance-beat-expectations-in/

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